How Geopolitical Tensions in the Middle East Could Impact Energy Markets

Geopolitical tension often creates unease in energy markets. Recent discussions around a potential U.S. strike on Iran have prompted questions from commercial energy buyers about whether natural gas and electricity prices could be affected.

While no military action may occur, energy markets respond to probability, not just confirmed events. Even the perception of supply risk can influence pricing. Understanding how that risk moves through global markets is key to separating headlines from actual exposure.

Iran’s Role in Global Energy Markets

Iran holds roughly 12% of the world’s proven crude oil reserves, approximately 208 billion barrels, making it the third-largest holder globally. It is also a member of the Organization of the Petroleum Exporting Countries (OPEC), giving the country further influence over global oil production. However, production has been affected by sanctions and limited investment.

While Iran’s production levels matter, the larger strategic factor is geography.

Iran maintains control over the Strait of Hormuz, which is one of the most important energy transit routes in the world. Approximately 20% of global daily oil consumption and a significant share of global liquefied natural gas (LNG) shipments pass through this narrow waterway.

Alternative export routes exist, but they could only carry a fraction of the oil and LNG that passes through the strait. As a result, markets closely monitor any escalation that could threaten shipping flows.

How the Market Could React to Geopolitical Risk

Historically, markets react quickly to perceived risk by building in a temporary “risk premium” while sustained price increases typically require a material interruption of supply. Because energy markets are forward-looking, when geopolitical tension rises, oil futures often move first, reflecting uncertainty about future supply.

Past geopolitical events in the Middle East have followed a pattern:

• Initial price spike driven by uncertainty
• Increased volatility in futures markets
• Partial or full retracement if no sustained disruption occurs

The magnitude and duration of price movement depend on whether physical supply is removed from the market. Short-term fear-driven volatility does not always translate into long-term structural price increases and this distinction is important for large energy buyers to recognize.

U.S. Domestic Natural Gas Production Could Prevent Sustained Price Increases

Many headlines focus on oil prices. However, oil and U.S. natural gas markets operate differently, and commercial electricity prices are primarily influenced by natural gas. Oil is globally traded and highly sensitive to Middle East developments. A significant disruption in the Strait of Hormuz would directly impact crude markets.

While higher oil prices can influence inflation and transportation costs, oil has a limited direct role in U.S. power generation.

The United States is one of the largest natural gas producers in the world, producing nearly as much natural gas as Russia, Iran and China combined. This strong domestic supply can provide insulation from global gas volatility.

However, the U.S. is also a major LNG exporter. If global LNG markets tighten due to disruption in the Middle East, international buyers may compete more aggressively for supply. That dynamic can raise domestic natural gas prices at the margin.

Natural gas is the dominant fuel for U.S. power generation. As a result, gas prices are the primary transmission pathway to commercial electricity costs.

The Bigger Picture: How to Plan Against Uncertainty

Tensions involving Iran and the Strait of Hormuz naturally draw attention because of the region’s role in global energy flows. Approximately one-fifth of the world’s oil supply transits this corridor, making it strategically significant.

However, not every geopolitical headline results in sustained energy price increases. Markets price in risk quickly and adjust as conditions evolve. For commercial buyers, the key is understanding exposure pathways and maintaining a procurement strategy that allows them to adjust when prices become volatile.

In uncertain environments, process matters more than prediction.

Energy markets will continue to respond to global developments. The most effective safeguard for commercial organizations is not forecasting geopolitical outcomes, but ensuring that energy purchasing strategies are aligned with risk tolerance, market exposure and long-term business objectives.