With Israel and the US launching military strikes on Iran on Saturday, the global oil market is expected to see significant volatility, much of which will be contingent on how the conflict shapes up. This includes the nature and scale of Tehran’s response, and whether the conflict will remain contained to within Iran or will spill over to hit critical oil supply routes from the Gulf.On Friday, oil prices hit a seven-month high as indirect talks between the US and Iran dragged on without a breakthrough amid growing US military presence in the region. With Saturday morning’s strikes across Iran marking a major escalation in the conflict, the war premium in oil prices could jump when markets open after the weekend break.From softening in the event of a US-Iran agreement to reaching triple digits in the worst-case scenario of a regional conflict and oil flow disruption, nothing seems off the table when it comes to oil prices in the current circumstances.For India, one of the top oil importers globally, higher oil prices are never good news. Given India imports around 2 billion barrels of oil annually, every $1 increase in oil prices could increase the country’s already hefty oil import bill by around $2 billion on an annualised basis.The reason why oil markets appear jittery is the apprehension that the conflict could choke oil supplies from the wider Gulf region, which accounts for the lion’s share in global oil exports. At the heart of the anxiety is the risk that the regime in Tehran, if cornered and posed with an existential threat, could disrupt energy flows via the Strait of Hormuz—a narrow but vital waterway that is a critical chokepoint for global oil and gas flows.The global oil market is well-supplied with enough surplus, which emboldened the Trump administration as it evidently expects minimal impact of strikes on Iran on oil prices. The situation, however, could turn on its head in case of an extended blockade of the Strait and the conflict spilling over to the wider region.In addition to Iran, other major Gulf oil producers like Saudi Arabia, Iraq, the UAE, and Kuwait are heavily dependent on the Strait to feed the global market. Therefore, despite their often-strained relationships with Tehran, some of the Gulf nations had been actively engaging with the US administration to prevent military intervention. Nevertheless, as tensions between Washington and Tehran refused to die down and the risk of possible US military strikes and regional conflict became increasingly credible, benchmark Brent crude prices ended the week well over $72 per barrel, the highest since late July of last year.Story continues below this adThe importance of Strait of Hormuz for oil flowsDescribed by the US Energy Information Administration as the world’s most important oil transit chokepoint, the Strait of Hormuz—the narrow waterway between Iran and Oman that connects the Persian Gulf with the Gulf of Oman and the Arabian Sea—handles approximately one-fifth of global liquid petroleum consumption and global liquefied natural gas (LNG) trade. Roughly 15 million barrels of crude and 20% of global LNG volumes pass through the Strait every day.“With a deal looking increasingly difficult to reach, it also means it will be more challenging to find a route to de-escalation, especially following the US military build-up we have seen in the region. And if de-escalation is not possible, the key question will then be what type of action the US takes and how Iran responds to this. For oil markets, the concern is clearly what action would mean not only for Iranian oil supply, but also broader Persian Gulf oil flows, given the risk of disruption to shipments through the Strait of Hormuz,” ING’s commodities strategists Warren Patterson and Ewa Manthey wrote in a note last week.While some pipelines exist in the gulf states to bypass the waterway, their capacity is restricted. Even at full utilisation, 9 million barrels per day (bpd)—9% of global demand—would remain structurally at risk during a major escalation, according to industry experts. As per tanker data, over 40% of crude oil imported by India transits the Strait of Hormuz. The importance of the chokepoint for India’s energy supply and security cannot be understated as the country is the world’s third-largest consumer of crude oil and depends on imports to meet over 88% of its requirement.Iran has, time and again, threatened a blockade of the Strait and strikes against tankers transiting it. Moreover, there is also the lurking threat of strikes by Iran’s proxies in Yemen against tankers transiting the Bab el-Mandeb, another important maritime chokepoint in the region that connects the Red Sea to the Gulf of Aden and the Arabian Sea, and is a critical artery for global energy flows that transit the Suez Canal.Story continues below this adHow real is the threat of a Hormuz blockade?While Iran frequently threatens to close the Strait when under pressure, it has actually never done it. Analysts believe a full blockade would be politically self-destructive for Tehran as the move could alienate key allies like China, which is the destination for most of Iran’s own oil.A blockade would also infringe upon Oman’s territorial waters, souring relations with a neighbour that serves as a vital back-channel for diplomacy with the US. Moreover, Iran would almost certainly face international military retaliation if it attempted to halt global energy shipments.Notwithstanding these deterrents, the risk of conflict remains. Historically, Iran has shown restraint, even when its nuclear facilities were targeted last year. Experts, however, warn that if the regime in Tehran feels cornered and fears imminent collapse, the likelihood of the conflict spilling over into the Strait of Hormuz increases significantly. Because West Asia’s energy export system is globally systemic, any such escalation would send energy prices soaring and inflict severe damage on a fragile global economy.The US is evidently interpreting previous confrontations—where military actions did not cause oil prices to spike—to reinforce its current assumptions that a conflict with Iran will be similarly low-risk. Such views are also based on the US’s own high oil production levels and Washington’s belief that West Asian heavyweights like Saudi Arabia—the world’s largest oil exporter—can quickly recover from any disruption to keep the global oil market well-supplied, according to experts.Story continues below this ad“But I worry Washington is lulling itself into a false sense of security. The risk is that US officials might misread Tehran’s risk tolerance to respond far more forcefully to any American attack than it did in the past. If the Islamic Republic feels its survival is at stake, the regional energy industry could become a target. By interpreting past confrontations in ways that reinforce their own current assumptions, US officials risk missing important alternative scenarios,” Bloomberg Opinion columnist Javier Blas wrote in a column on the issue.How oil prices could move hereonAccording to projections published on February 18 by Clayton Seigle of US-based Center for Strategic and International Studies, there are four primary oil supply disruption scenarios that could result from a conflict between the US and Iran, each with distinct price implications.In the first scenario—US or Israel disrupting Iranian oil shipments—Seigle expects oil prices to rise by $10-12 per barrel, primarily due to China seeking around 1.6 million bpd crude from other sources to cover its loss of Iranian barrels. In the second scenario, which would involve Iran targeting the Strait of Hormuz and throttle up to 18 million bpd of non-Iranian energy flows, oil prices could spike over $90 per barrel.If the US or Israel attack Iranian oil infrastructure like platforms, refineries, and terminals, it would keep Iranian oil off the market for a longer period and could pave the way for further escalation of the conflict. In this third scenario, Seigle believes oil prices could top $100 per barrel.Story continues below this adThe fourth scenario—Iran directly attacking Arab Gulf oil facilities—could “lead to a historic oil price spike, potentially higher than the $130 per barrel that was touched in 2022 following Russia’s invasion of Ukraine”, Seigle wrote in his analysis.“President Trump faces a dilemma in how to confront Iran without incurring an unwanted oil supply disruption and gasoline (petrol) price spike. In Operation Midnight Hammer (US strikes on Iran’s nuclear facilities in June 2025) and in the operation to capture Nicholas Maduro, Trump selected military options with low risk of negative consequences. But Scenarios 2 and 4 afford Tehran leverage that could deter Trump from undertaking a major military operation against Iran. Meanwhile, Israel, which launched the Twelve-Day War against Iran last summer, remains a wildcard,” he wrote.