Oil, war and power: How Gulf tensions are reshaping global energy markets

Report by Yazbek Wehbe, English adaptation by Mariella Succar

Oil prices continue to reflect geopolitical tensions, military developments, and global supply and demand.

At the beginning of July, following the ceasefire between the United States and Iran, Brent crude fell to around $70 a barrel after the conflict and the closure of the Strait of Hormuz had pushed prices as high as $125 a barrel earlier this year.

Tensions in the Gulf have since escalated again, with Washington and Tehran exchanging fire. Iran has targeted several vessels, while the United States has closed the Strait of Hormuz once more, as both sides seek to assert control over maritime traffic.

The renewed tensions pushed Brent crude to $87 a barrel on Tuesday. Concerns have also grown over the Yemen-Saudi front, amid fears that disruptions to shipping through the Bab al-Mandab Strait could further drive up global energy prices.

Between 7 million and 10 million barrels of oil transit the Bab al-Mandab Strait each day. The waterway carries roughly 12% to 15% of global trade bound for Europe, the United States, and Asia, and supplies around a quarter of Europe's liquefied natural gas imports.

Rising oil prices have created winners and losers. While higher energy costs weigh on oil-importing economies and consumers, they also increase profits for U.S. energy companies.

Higher prices make U.S. shale oil production more profitable despite its relatively high extraction costs, benefiting companies such as Exxon Mobil and Chevron and encouraging higher output.

Oil prices above $80 a barrel also strengthen the competitiveness of U.S. exports in East Asia, while Iran continues to pursue its strategic objective of maintaining influence over the Strait of Hormuz.

Sharp swings in oil prices carry economic consequences in both directions. Lower prices reduce producers' revenues, while higher prices fuel inflation, weaken consumer purchasing power, and accelerate the shift toward alternative energy sources.