Iran-Israel Conflict Drives Crude and Diesel Price Volatility | Advisor Pulse

Recent escalations between Israel and Iran have rattled global energy markets. On June 13, 2025, Israel launched strikes on Iran’s military and nuclear facilities, killing high-ranking officials and nuclear scientists. Iran responded with missiles and drone attacks targeting Israeli cities. Over the weekend, Israel hit Iranian energy infrastructure, including refineries and storage sites. While these strikes were significant, they have not impacted Iran’s oil production or exports.

As of June 16, Iran has continued to strike Israeli cities and has threatened to close the Strait of Hormuz—a key shipping route for nearly 20% of global oil. Though the strait remains open, even the threat of closure has added risk to the market.

Reports suggest that Iran is signaling a willingness to resume nuclear negotiations, provided the U.S. does not directly join Israel’s military campaign. This growing openness to diplomacy is likely to ease market fears of a broader regional conflict and apply near-term downward pressure on oil prices by removing some of the risk premium priced in last week.

Crude oil prices surge amid Iran-Israel conflict, then retract

Crude prices spiked on June 13, with West Texas Intermediate (WTI) rising ~7% to $72.98 per barrel—the largest one-day gain since the early days of Russia’s invasion of Ukraine. That price jump fed directly into diesel markets, where diesel makes up just over half of the total cost structure. National wholesale diesel prices were up by by 5% (15.1¢/gallon), pushing national averages back above $3/gallon.

However, at the market open on June 16, crude oil prices are down currently well over $2.00 per barrel, as physical oil flows have not been disrupted. This reflects a familiar pattern: energy markets often react strongly to geopolitical threats, but price gains tend to fade unless actual supply is affected.

Impact of Iranian oil sanctions on global supply

Iran produces 3.2 million barrels per day (about 3% of global supply), but most of it is sanctioned and sold to China. Unless strikes begin targeting key export facilities—like Kharg Island, which handles nearly 2 million barrels per day—the market is unlikely to face real supply shortages. And even in that case, OPEC countries like Saudi Arabia or the UAE could ramp up production to fill the gap.

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Markets are currently pricing in a short-term “risk premium,” but history shows that conflict between Israel and Iran usually causes brief price spikes that fade as the situation stabilizes.

Still, this round of conflict is different: Israel’s attacks mark a more aggressive strategy than past proxy conflicts, increasing the risk of broader regional involvement. If oil flows aren’t disrupted, price volatility is likely to remain short-lived.  If supply is affected—especially through the Strait of Hormuz or major export terminals—we could see a more lasting impact on diesel and freight fuel costs.

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