In early June 2025, Israel launched a major air assault against over 100 Iranian military and nuclear sites across Tehran, Natanz, Isfahan, and beyond. The strikes, involving more than 200 fighter jets and covert Mossad-led drone sabotage, resulted in the deaths of several senior IRGC commanders and prominent nuclear scientists. In retaliation, Iran launched missile and drone barrages toward Israeli territory, marking a significant intensification of hostilities after decades of proxy confrontations.
Here’s a thorough breakdown of the recent Israel‑Iran war, covering the historical context, recent triggers, and its ripple effects—especially on oil and financial markets:
Historical context: From covert comrades to open adversaries:
Pre-1979 partnership
- In the 1960s–70s, Israel and Iran maintained covert cooperation—communicating through military, intelligence, oil-for-arms deals like “Project Flower,” and even diplomatic engagement.
- Despite the hostility of neighbouring Arab states, relations benefitted both sides: Iran received Western-friendly partners, while Israel gained intelligence support.
Post-revolution rupture
- The 1979 Islamic Revolution ended all ties. Ayatollah Khomeini labeled Israel the “Little Satan” and cemented theocratic opposition.
- Since then, Iran has backed anti‑Israel groups (Hezbollah, Hamas), while Israel has sabotaged Iran’s nuclear ambitions through covert and direct actions.
Proxy warfare to direct strikes
- Historically fought indirectly via proxies, direct military engagement escalated in 2024: strikes on Iranian consulates/officers provoked retaliatory missile/drones, marking a shift to overt conflict.
Triggers of the most recent escalation:
June 2025 Israeli strikes
- On June 13, Israel launched airstrikes on Iranian nuclear facilities and military installations—killing senior IRGC commanders and scientists—to dismantle Tehran’s capabilities.
Iran’s swift strikeback
- In turn, Iran fired ballistic missiles and drone swarms targeting military zones and parts of Tel Aviv, breaching Israel’s Iron Dome defences.
Global diplomatic and military alignment
- The U.S. hinted at direct support for Israel, even demanding Iran’s “unconditional surrender.” G7 nations called for de‑escalation while U.S. military assets moved into the region.
Impact on financial markets:
Oil & Energy:
- Massive price surge: Brent jumped nearly 10% on, approaching $77/barrel, their highest since early 2025.
- Supply fears: Anxiety centers on a potential closure of the Strait of Hormuz—as much as 20–30% of global oil passes through it. Analysts warn prices could skyrocket to $120+ if that’s disrupted.
- Volatility spike: The OVX crude oil volatility index surged 104% in five days, highlighting increased uncertainty.
Broader markets:
- Stock market reaction:
- Energy stocks rallied as investors rotated into the sector.
- Global equities initially dropped but then rebounded modestly—investors appear to be “shrugging off” the geopolitical risk in favor of resilience amid ample oil supply.
- Safe-haven shifts:
- Gold and U.S. dollar saw increased demand as appeal for safe-haven surged.
- U.S. Treasury yields edged higher, pressured by inflation concerns tied to rising oil.
- Inflation & central bank worries:
- Rising energy prices threaten to reignite inflation, complicating policy decisions—some central banks may delay rate cuts or even shift to tightening.
Brent oil price snapshot:
More recently on June 21–22, 2025, the U.S. launched precision airstrikes, dubbed Operation Midnight Hammer, targeting three key Iranian nuclear facilities at Fordow, Natanz, and Isfahan. The assault involved B-2 bombers, submarine-launched Tomahawks, and massive ordnance penetrators, aiming to disable Iran’s uranium enrichment and storage capabilities. U.S. President Trump declared the mission a “spectacular military success,” warning of further action if Iran didn’t pursue peace.
Consequences:
- Regional escalation: Iran retaliated by launching about 20 ballistic missiles at Israel, injuring 16 people, according to initial reports. Subsequently, Iranian proxies and allies, including the Houthis, signalled intentions to target U.S. interests in the region.
- Global alarm: Nations like China, Russia, and the UN condemned the strikes as violations of international law. European leaders urged de-escalation and diplomacy. Key oil chokepoints, like the Strait of Hormuz, faced renewed threats, raising energy security concerns.
- Domestic and diplomatic impact: In the U.S., congressional voices were divided, some praised the action; others questioned its legality. Vice President Vance and top administration officials stressed the operation focused on halting nuclear development, not regime change, though Trump later alluded otherwise.
Iran’s response:
- Condemnation: Foreign Minister Abbas Araghchi labeled the strikes a “criminal aggression” and a “reckless violation” of the UN Charter, warning of “everlasting consequences”.
- Military reprisals: Iran struck back at Israel with ballistic missiles, reportedly injuring 16–63 people, including hits on residential and military sites. The IRGC declared it would hit U.S. bases in the region, and the Iranian parliament voted on closing the Strait of Hormuz.
- Legal and diplomatic moves: Tehran sought an emergency UN Security Council session, affirmed its right to self-defence, and vowed to pursue justice via international court.
- Hardening posture: Iran reportedly ramped up air defences, deployed missile systems, and deepened military cooperation with Russia and China.
Outlook & Key Risks
If the Israel–Iran war becomes prolonged, the conflict could spiral into a wider regional war, drawing in powerful allies and destabilizing the Middle East. Additionally, U.S. involvement potentially can broaden the conflict that can lead to escalations. Key oil-producing nations like Saudi Arabia and the UAE could be forced to respond, while Iranian-backed militias may escalate attacks across Lebanon, Syria, Iraq, and Yemen. Global energy markets would likely face severe disruptions, especially if Iran attempts to close the Strait of Hormuz, through which a third of the world’s seaborne oil passes, sending crude prices soaring above $100–120 per barrel. Financial markets could see heightened volatility, inflationary pressures may return, and central banks might delay interest rate cuts, threatening global economic stability.
| Key Factor | Potential Impact |
| Escalation / Strait closure | Oil could hit $90–120/barrel, triggering inflation globally, pressuring equities, bonds, and prompting tighter monetary policy. |
| Diplomatic containment | If Iran seeks talks (reports underway), oil may retreat into $70–80 range, markets stabilize. |
| Energy supply buffer | OPEC spare capacity—especially Saudi & UAE—can help offset loss of Iranian output (~1.6–3.3 mbpd), cushioning supply shocks. |
| Policy responses | Rising oil/inflation may delay central bank easing or provoke further tightening—adding complexity to equity and bond outlooks. |
Amid the 51st G7 Summit taking place 16–17 June 2025 in Kananaskis, Canada, world leaders found themselves responding to the sudden eruption of Israel–Iran hostilities. In a joint statement, G7 leaders urged de‑escalation, including a Gaza ceasefire, while also emphasizing the need to maintain stability in global energy markets. However, U.S. President Trump departed the summit early to return to Washington and oversee the crisis, declining to endorse parts of the statement related to ceasefire diplomacy.
Summary
The confrontation marks a dramatic shift: from shadow wars to a kinetic July‑like crisis. For investors, oil and energy stocks are the immediate hedges, while markets brace for volatility tied to supply‑inflation policy feedback loops. If diplomacy prevails, volatility may subside, but sustained escalation could reshape market expectations and inflation dynamics globally. The latest U.S. strikes aimed to degrade Iran’s nuclear infrastructure through a calibrated military strike. The operation achieved tactical success but spurred immediate Iranian missile responses, regional instability, global diplomatic backlash, and assurances from Tehran of further repercussions. The risk of escalation remains high.
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