Name: Israel-Iran crisis climbs ladder of financial risk | REUTERS
Uploaded: 2025-06-19T17:15:25.000Z
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Now, I think there is a risk that oil investors are underestimating the risks involved.

Adverbs of degree

The kind of strawman scenario of this has to be really bad until Iran closing off the Strait of Hormuz is slightly misleading because Iran could do all kinds of small disturbance like using its drones, using its boats to to affect the export channel by those oil tankers.

Even as there's a credible risk that even a small kind of small scale of effort on Iran's behalf to try to disrupt the oil trade, disrupt the oil routes, would be bringing significant risk to oil market.

The crisis in the Middle East has widened to a new and more perilous front.

On Friday, June 13, Israel launched a series of strikes on Iran seeking to eliminate what Israeli Prime Minister Benjamin Netanyahu has publicly decried as existential threats posed by ballistic missiles and what he claims is a rising nuclear weapons program.

The initial attack, employing both conventional firepower and a spionage, struck around 100 sites, according to Israel's military, killing top military commanders.

Iran has responded with its own barrage and the two nations continue to trade attacks.

What once seemed a glimmer of hope the United States could broker some kind of de-escalatory pact in the region now lies in ruins.

What the outbreak of hostility means for the two nations, the region, and the world at large is the focus of this week's Views Room.

Welcome back to the Views Room, the weekly podcast that invites you, the listener, into a lively debate with breaking views columnists around the world.

After years of threats, escalating and subsiding tensions under a series of US administrations and against the backdrop of a worsening humanitarian crisis in Gaza, Netanyahu has tried to strike a decisive blow.

He claims that the White House was forewarned of the move while US officials say that President Donald Trump vetoed a direct attempt to kill Iran's Supreme Leader, Ayatollah Ali Khamenei.

Iran occupies strategically crucial territory, in particular projecting influence over the Strait of Hormuz, the conduit for oil shipments equivalent to a fifth of the world's daily consumption of crude.

As the conflict proceeds, the effects could be substantial.

George Hay, Breaking View's editor for Europe and the Middle East, and Yawen Chen, an energy columnist based in London, are with me to discuss the situation.

George, Yawen, welcome to the Views Room.

George, maybe it's best to just start with an explanation of what exactly is happening.

What was the status quo ante heading into Friday?

Is this part of a pattern of escalating brinksmanship?

I mean, it goes back to October the 7th in 2023, the attacks then by Hamas, which killed 1,200 people in Israel.

And at that moment, remember, it was obviously a tremendous shock.

But one of the key things that came out of that immediately was there was a good chance there would be some kind of confrontation between Israel and Iran.

And the reason for that is that Hamas and a number of other groups in the Middle East are widely seen as proxies of Iran, and so it was seen as an attack.

However, indirectly, an attack by kind of Iran on Israel.

And what's happened since then is we've had, obviously, the kind of ongoing war in Gaza.

But we've also had confrontations between Israel and Hezbollah in Lebanon, another proxy.

And that built last year in April and October.

There were two actual kind of unprecedented direct attacks by Iran on Israel in response to Israel killing some of the leaders of these proxies.

And so that has kind of been going along for some time now.

But the reason why the latest incident started on Friday, Thursday, Friday, the reason why that was still seen as a surprise is it had looked of late that if anything, we were moving towards some kind of deal between Iran and the US.

Now, the whole thing with Iran is always that.

And the reason why Israel is often so concerned about what it's doing is it's perpetually somewhere near or on the brink of building up towards getting a nuclear bomb.

And the whole strategy for various administrations in the US is to try and kind of stop that happening.

And Donald Trump, the US president, it wasn't obvious, but it looked like they were kind of heading towards some kind of deal which would have resolved that to everyone's satisfaction.

So what's happened now is that Prime Minister Netanyahu signed off on Thursday, Friday, a huge strike on Iran, which is a massive escalation on what we've seen before.

And it's killed a number of senior military figures in Iran.

And what he's trying to do is, it looks like just kind of solve this problem for them once and for all and remove their nuclear capability.

And the question is whether this is actually what's going to happen.

And I mean, to be clear, obviously, we should probably say up front, Iran denies Israel's characterization of its civilian nuclear program.

This has been an object of negotiation, like the degree to which that program is allowed to develop, as you say, between the US administration and Iran for many years.

I think the important thing to keep in mind here is what you're saying, right, that this is interlinked with a lot of other things happening in the region.

This is not just some straightforward conflict happening in a delimited zone between two conventional forces.

This is something that widens out to the entire region.

Like you say, people see linkages between Hamas, which operates in the Gaza Strip, which obviously that has been the site of a massive Israeli military campaign over the past year.

There are linkages to, as you say, Hezbollah.

We have various crises in the region, including in Syria, among the Houthis.

Like, can you just step me through just very quickly and simply kind of like what those linkages are?

And maybe we can get into like what that implies for how wide this crisis could become.

Well, yeah, Iran had this strategy for dealing with Israel or dealing with what is perceived as a threat of Israel.

And that basically meant encircling Israel with these proxies, one of which is Hamas, one of which is Hezbollah.

They are also aligned with the Houthis in Yemen.

And they have various links with Syria and links with Iraq.

So you have all these different groups in those regions, in those areas.

And they are usually seen as proxies or Iran aligned.

And the whole point is for a long period of time up to quite recently, you'd often see, you know, obviously the Houthis were doing what they were doing in the Red Sea.

They were kind of disrupting shipping there.

But before that, they were, well, proxies for Iran were linked with various acts of sabotage in the Arabian Gulf and all sorts of things, all sorts of kind of mini conflicts.

And Iran tended not to kind of say, yes, these groups are linked to us.

But they were always, it was always this kind of like proxy war going on in the background.

Now, actually, what's happened now is a lot of the leadership of these big, these proxies, in particular Hezbollah, a lot of those senior leaders have been killed by Israel over the last 18 months.

And the perception is this rig of fire, this strategy on behalf of Iran is a lot weaker than it was.

And so actually, despite the fact that there's always been this kind of indirect hostility between Israel and Iran in the last however many years, what's actually now happening, almost kind of for the first time, is a really direct face off between the two of them.

And, Johan, I'd love to pull you in here because that explanation of how all these forces are acting in concert makes it seem like it's a, I hesitate to say equilibrium, but a kind of system of alliances and so on that is now moving into disequilibrium that promises perhaps escalating violence going forward.

And yet the market reaction we've seen thus far has been pretty subdued, right?

The move in the price of oil has been notable, but not historically large.

Global indices like the S&P 500 continue to climb.

Why do you both think the world seems more complacent now than, say, following the invasion of Ukraine?

I think the oil market has traditionally been a market where investors adopt this seeing is believing attitude.

So you can probably trace back to when Israel first launched the war in Gaza.

I don't think oil investors were too agitated just because it doesn't really directly apply.

It doesn't affect directly any oil flows.

As long as Iran is not dragged in, I think there's a big shragging of this on their behalf.

But as George has mentioned, this is really a milestone that has, for the first time, seen a direct involvement targeting Iran.

And I think that's why you see oil prices went up 7% on Friday.

But over the weekend, there's a notable restraint where Iran's export facility, which basically exports 90% of its oil, wasn't affected.

You can see it from either OPEC hiking their output, even in the previous few weeks.

And there is a clear preference for Trump to maintain oil prices relatively low.

So there's some kind of restraint so far to not affect global oil flow as much as possible.

Now, I think there is a risk that oil investors are underestimating the risk involved.

So I think the kind of strawman scenario of this has to be really bad until Iran closing off the Strait of Hormuz is slightly misleading because Iran could do all kinds of small disturbance, like using its drones, using its boats to affect the export channel by those oil tankers.

So I think even if there's a credible risk, even a small scale of effort on Iran's behalf to try to disrupt the oil trade, disrupt the oil routes, would be bringing significant risk to the oil market.

Yeah, I mean, one thing I'd add to that is just, on the face of it, there's something really weird about where we are, because in 2022, when Russia invaded Ukraine, people were freaking out about the idea that Russia would be sanctioned and then its oil wouldn't go onto the market, which didn't quite work out in so many words.

But the point was that was probably somewhere around 5% of the global oil consumption, about 100 million barrels a day.

That was about maybe roughly about 5% of that.

And the market freaked out and went up to $120 a barrel.