President Donald Trump has demanded Iran’s “unconditional surrender”, including dismantling its nuclear program, and indicated he may decide within two weeks whether to authorise strikes on Iranian nuclear facilities.
While President Trump sees a substantial chance Iran will capitulate, continued refusal raises concerns the conflict could escalate, potentially threatening oil shipments through the strategic Strait of Hormuz.
Commonwealth Bank of Australia economist Harry Ottley said market sentiment remains fragile, with global investors closely watching for signs of escalation. Westpac economist Illiana Jain echoed the concern, noting that the White House’s timeline has introduced “another layer of geopolitical uncertainty”.
US equity and bond markets were closed for the Juneteenth public holiday on Thursday (19 June), but US stock futures fell in thin trading while Treasury futures remained steady.
European equities and bonds sold off as investors responded to the heightened risk environment. Oil prices continued to climb and the Australian dollar eased against the greenback, with the AUD/USD cross falling to around 0.6482.
Jain noted that commodities were being supported by geopolitical risk, with WTI crude for July delivery up 0.4 per cent to US$75.14 per barrel and gold edging up 0.1 per cent to US$3,370.9 per ounce.
According to ANZ’s economics team, crude oil prices had rallied earlier in the session following Israeli strikes on Iranian nuclear sites and after Israel warned its campaign could result in regime change in Tehran.
Satellite imagery showed Iran moving to offload oil from storage into global markets, according to ANZ.
However, gains were pared later in the session following comments from the White House that no immediate military action had been supposedly confirmed.
“Risks of supply disruptions in the oil market remain elevated,” ANZ stated.
The major bank had assigned a 50 per cent probability to an extended conflict that puts oil supply at risk but remains manageable due to over 6 million barrels per day of spare OPEC capacity, keeping prices within the US$75–85 range.
A more serious escalation, assigned a 20 per cent chance, could push prices to US$90–95, while a peaceful resolution (30 per cent probability) could see prices fall to US$60–65. Weighted for probability, ANZ expects Brent crude to trade between US$74 and US$81 per barrel in the near term.
Currently, the Geopolitical Risk Index sits at its most elevated level since October 2023 – the Hamas strike on Israel on 7 October – with a reading of 262.90 as of June 2025.
For his part, AMP chief economist Shane Oliver said while oil prices are currently up around 12 per cent, they remain below last year’s average and are “a bit of a non-event historically”. However, he warned that direct US involvement would dramatically increase the risk of a supply shock.
“The bottom line is that US military intervention in Iran would mean an increasing risk of a significant disruption to global oil supplies – 20 per cent of which flows through the Strait of Hormuz – which could push oil prices well beyond US$100 a barrel, possibly to around US$150/barrel,” Oliver said.
“This would likely only be brief, as the US military would likely quickly move to stop Iran’s capabilities. But even if it’s for a few weeks or months, it could still risk a significant blow to confidence regarding the economic outlook and so could push sharemarkets down sharply.”
According to the chief economist, while global and Australian shares have seen a strong rebound from their April lows – they remain at high risk of a sharp near-term pull as the risk of an oil supply disruption flowing from the war with Iran is high, and President Trump’s tariff threat is far from resolved.
Examining history, Oliver highlighted that geopolitical events often trigger sharp initial sharemarket falls – averaging around 8 per cent – followed by recoveries averaging 14 per cent over the next 12 months, illustrating the difficulty of timing such shocks.
As such, Oliver characterised the near-term outlook for shares as “messy”.
“Shares should benefit on a 6–12 month view as the threat to oil prices reverses, Trump pivots towards more market-friendly policies, the Fed starts cutting rates again along with ongoing rate cuts from other central banks including the RBA,” he said.
Significant risk
According to Professor Robert Brooks of Monash Business School, the risk of a blockade in the Strait of Hormuz is both real and significant for both global oil and gas supply chains.
“That clearly is one of the significant issues,” Brooks said on a recent episode of the Relative Return Insider podcast. “The Strait of Hormuz is an extremely important issue for two reasons … one is about oil; it is a major part of the oil supply chain.
“But the other role it plays [is in] international supply chains around gas … At the moment, both Israel and Iran have had some of their gas production impacted, but other really large gas producers in the region [haven’t yet been impacted].
“If we were to end up in an escalated situation that involved either Iran’s export capacity being directly impacted in its own right, or the Strait of Hormuz navigation capacity being impacted, that would affect both oil and gas,” Brooks said.
As such, Brooks warned that financial markets may be underestimating the potential economic fallout from escalating tensions in the Middle East, particularly as oil prices have risen, but remain well below the peaks seen during the early stages of the Russia–Ukraine conflict – suggesting investors are still pricing in a relatively swift resolution.
“There does seem to be activity going on in markets … that they don’t see the supply disruption as potentially being as significant and/or they don’t see the conflict as being ongoing,” Brooks said.
Ultimately, Brooks outlined what a worst-case scenario might look like, warning that a prolonged or expanded conflict could have far-reaching consequences.
“Any intensification of the conflict, both in a locational sense or a duration sense, would pose that sort of risk,” he said. “We would then end up in a much more complex situation around oil markets and at risk of a higher price spike.”
He also cautioned that disruptions could spread beyond oil and gas to broader supply chains, particularly if major shipping routes are affected.
