The price of Brent crude oil, the global benchmark, rose as much as 12% to the highest price since January in the immediate aftermath of the Israeli attack on Iran last week. While the initial targets hit by Israel were connected to Iran’s nuclear programme, by the weekend the conflict had escalated with Iran’s oil infrastructure also coming under fire.
On a global scale, Iran’s oil production is fairly small with the country accounting for around 2% of crude exports. Other producers in the region such as Saudi Arabia and the United Arab Emirates (UAE) are capable of raising their own production levels to meet any shortfall in the immediate term, meaning that there could be little or no drop in global supply as a direct result from damage to Iranian capabilities.
However, there is a risk that, should the conflict escalate further, Iran would target major shipping routes such as the Strait of Hormuz.
That bottleneck at the end of the Persian Gulf, bordered by Iran and the UAE, sees around a fifth of global oil supply pass through its waters every day.
This suggests that the rise in oil prices is not driven by a concern about the loss of Iranian supply, which would be fairly easy to manage, but rather the risk of a greater disruption which could be caused by the Iranian regime.
By Tuesday morning those oil prices had given up a significant amount of the immediate spike in the wake of the outbreak of hostilities, but still remained around 8% higher than the level seen a week ago.
The hope is that there will be a fast resolution to the conflict which would allow those prices to settle back towards where they have already spent much of this year.
The history of conflicts in the Middle East, and other events which have led to spikes in energy prices, point to this being the most likely scenario.
In fact, there is plenty of research that shows the longer-term trend in oil prices – the 1970’s oil crisis aside – is almost always driven by demand rather than by supply.
The Russian invasion of Ukraine saw Brent jump by 30%, but that surge had been fully erased within months as investors and oil traders became increasingly concerned about global demand as a result of the slowdown in growth caused by supply-chain issues at the time.
Similarly, following the 9/11 attacks in New York, an oil price rise was quickly reversed when it became clear that the risks of a global economic slowdown had significantly increased.
Fundamentally, higher geopolitical tensions have a negative impact on global growth prospects which in turn have an effect on the outlook for oil demand which inevitably will be reflected in the price of crude.
When examining the outlook for oil prices, it is always worth looking past the immediate news headlines and trying to get a feel for where the global economy is at the moment, and where it might be in the coming months.
Ultimately, the vast majority of global economic activity is driven by consumption, so a measure of how consumers are feeling is a good place to start. The Organisation for Economic Co-operation and Development (OECD) has recently started producing a monthly barometer of consumer confidence in developed economies.
That barometer showed a large drop in how consumers felt about both their current financial situation and their outlook for the coming 12 months in March and April of this year (see Figure 1).
It does not take much detective work to figure out that the single biggest event which weighed on sentiment in those months was the announcement by President Trump of his plan to turn the global trade order on its head.
While Trump has made some moves to back down on the more adventurous trade measures announced, enough of them remain in place to cause a reasonable observer to conclude that the outlook for global growth is considerably worse than it was at the start of this year. That outlook has inevitably been reflected in the price of oil as a worsening growth outlook means a worsening energy demand outlook.
That sentiment was reflected by Minister for Finance Paschal Donohoe this week.
Speaking at the National Economic Dialogue in Dublin on Monday he said that the near-term uncertainty is weighing on consumer and business spending, and that the uncertainty is likely to continue until there is some clarity regarding tariffs.
He made the important point that “taxes on imports lead to higher prices for businesses and consumers and create disincentives for firms considering long-run investments”.
This means that tariffs have the potential to not just hit growth prospects in the short term, as we are already seeing, but also hit output in the medium and longer term as a lack of investment now will have ramifications long into the future.
Oil prices rose amid concerns over Middle East supplies. / Donal O' Leary
For Irish farmers this all means that any increase in fuel costs as a result of the conflict between Isreal and Iran should, a major escalation aside, be a short-lived phenomenon.
However, the heightened uncertainty for the global economy remains in place and while this might be good news for energy prices, it could hit consumer demand in ways that are not yet clear.
There will be little benefit for farmers from low energy prices if the prices they get paid for what they produce
also fall.
European gas prices also ticked higher this week as Iran is a major player in global gas markets, accounting for around 7% of global production. However, for Irish farmers the bigger risk from the Israel-Iran conflict may come from fertiliser markets.
Iran is a major producer of both urea and anhydrous ammonia. In 2024 it produced 4.5mt of urea and was the world’s third largest exporter of the product. While export restrictions which have been in place for several years due to the country’s nuclear programme and its support for Russia mean that there is little in the way of direct trade with the EU, the country is a major exporter to Brazil and Turkey.
If those countries need to find new suppliers, either in the short or longer term, that will inevitably lift urea prices around the world, which would only be more bad news for fertiliser prices in Ireland which are already facing potential price rises from a range of regulatory and policy changes in the European Union.
In brief:
Israel-Iran conflict lifts oil prices. Impact on energy prices should be relatively short-lived. Biggest driver of oil prices is global demand.President Trump’s trade policies likely to hit global growth and therefore global demand.For Irish farmers the risk to fertiliser suppliers is the biggest concern.
The price of Brent crude oil, the global benchmark, rose as much as 12% to the highest price since January in the immediate aftermath of the Israeli attack on Iran last week. While the initial targets hit by Israel were connected to Iran’s nuclear programme, by the weekend the conflict had escalated with Iran’s oil infrastructure also coming under fire.
On a global scale, Iran’s oil production is fairly small with the country accounting for around 2% of crude exports. Other producers in the region such as Saudi Arabia and the United Arab Emirates (UAE) are capable of raising their own production levels to meet any shortfall in the immediate term, meaning that there could be little or no drop in global supply as a direct result from damage to Iranian capabilities.
However, there is a risk that, should the conflict escalate further, Iran would target major shipping routes such as the Strait of Hormuz.
That bottleneck at the end of the Persian Gulf, bordered by Iran and the UAE, sees around a fifth of global oil supply pass through its waters every day.
This suggests that the rise in oil prices is not driven by a concern about the loss of Iranian supply, which would be fairly easy to manage, but rather the risk of a greater disruption which could be caused by the Iranian regime.
By Tuesday morning those oil prices had given up a significant amount of the immediate spike in the wake of the outbreak of hostilities, but still remained around 8% higher than the level seen a week ago.
The hope is that there will be a fast resolution to the conflict which would allow those prices to settle back towards where they have already spent much of this year.
The history of conflicts in the Middle East, and other events which have led to spikes in energy prices, point to this being the most likely scenario.
In fact, there is plenty of research that shows the longer-term trend in oil prices – the 1970’s oil crisis aside – is almost always driven by demand rather than by supply.
The Russian invasion of Ukraine saw Brent jump by 30%, but that surge had been fully erased within months as investors and oil traders became increasingly concerned about global demand as a result of the slowdown in growth caused by supply-chain issues at the time.
Similarly, following the 9/11 attacks in New York, an oil price rise was quickly reversed when it became clear that the risks of a global economic slowdown had significantly increased.
Fundamentally, higher geopolitical tensions have a negative impact on global growth prospects which in turn have an effect on the outlook for oil demand which inevitably will be reflected in the price of crude.
When examining the outlook for oil prices, it is always worth looking past the immediate news headlines and trying to get a feel for where the global economy is at the moment, and where it might be in the coming months.
Ultimately, the vast majority of global economic activity is driven by consumption, so a measure of how consumers are feeling is a good place to start. The Organisation for Economic Co-operation and Development (OECD) has recently started producing a monthly barometer of consumer confidence in developed economies.
That barometer showed a large drop in how consumers felt about both their current financial situation and their outlook for the coming 12 months in March and April of this year (see Figure 1).
It does not take much detective work to figure out that the single biggest event which weighed on sentiment in those months was the announcement by President Trump of his plan to turn the global trade order on its head.
While Trump has made some moves to back down on the more adventurous trade measures announced, enough of them remain in place to cause a reasonable observer to conclude that the outlook for global growth is considerably worse than it was at the start of this year. That outlook has inevitably been reflected in the price of oil as a worsening growth outlook means a worsening energy demand outlook.
That sentiment was reflected by Minister for Finance Paschal Donohoe this week.
Speaking at the National Economic Dialogue in Dublin on Monday he said that the near-term uncertainty is weighing on consumer and business spending, and that the uncertainty is likely to continue until there is some clarity regarding tariffs.
He made the important point that “taxes on imports lead to higher prices for businesses and consumers and create disincentives for firms considering long-run investments”.
This means that tariffs have the potential to not just hit growth prospects in the short term, as we are already seeing, but also hit output in the medium and longer term as a lack of investment now will have ramifications long into the future.
Oil prices rose amid concerns over Middle East supplies. / Donal O' Leary
For Irish farmers this all means that any increase in fuel costs as a result of the conflict between Isreal and Iran should, a major escalation aside, be a short-lived phenomenon.
However, the heightened uncertainty for the global economy remains in place and while this might be good news for energy prices, it could hit consumer demand in ways that are not yet clear.
There will be little benefit for farmers from low energy prices if the prices they get paid for what they produce
also fall.
European gas prices also ticked higher this week as Iran is a major player in global gas markets, accounting for around 7% of global production. However, for Irish farmers the bigger risk from the Israel-Iran conflict may come from fertiliser markets.
Iran is a major producer of both urea and anhydrous ammonia. In 2024 it produced 4.5mt of urea and was the world’s third largest exporter of the product. While export restrictions which have been in place for several years due to the country’s nuclear programme and its support for Russia mean that there is little in the way of direct trade with the EU, the country is a major exporter to Brazil and Turkey.
If those countries need to find new suppliers, either in the short or longer term, that will inevitably lift urea prices around the world, which would only be more bad news for fertiliser prices in Ireland which are already facing potential price rises from a range of regulatory and policy changes in the European Union.
In brief:
Israel-Iran conflict lifts oil prices. Impact on energy prices should be relatively short-lived. Biggest driver of oil prices is global demand.President Trump’s trade policies likely to hit global growth and therefore global demand.For Irish farmers the risk to fertiliser suppliers is the biggest concern. 
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