What the conflict between Israel and Iran means for energy

The conflict between, the most serious outbreak of hostilities between the two countries in their history, continued over the weekend. Israel used missiles, drones and aircraft to strike Iran’s leadership, nuclear sites and other installations. Iran responded with missile and drone attacks on Israel.

The fighting has potentially wide-ranging implications for global oil and gas markets. Brent crude was trading at about US$73 a barrel on Monday morning, up from about US$65 a barrel at the start of June, but down from its peak of over US$78 a barrel soon after the news of Israel’s strikes first broke.

The latest hostilities began in the early hours of 13 June, when Israel launched a large-scale attack on Iran that targeted its nuclear programme and military leaders. Its decision to strike follows a years-long shadow war and an escalation of hostilities last year, including massed attacks on Israel by hundreds of Iranian missiles and drones.

The strikes came as Iran’s talks with the US over its nuclear programme appeared to be stalling. On 12 June, the International Atomic Energy Agency (IAEA) formally declared Iran non-compliant with nuclear non-proliferation obligations, for the first time in two decades.

Israel’s targets have included Iran’s main nuclear facilities and ballistic missile sites, as well as residences and command centres for senior military personnel and nuclear scientists.

Iran’s crude production and export infrastructure However, a fuel depot in Tehran and two gas processing plants have been hit, and a reported 420 mmcfd of gas production has been shut in.

Benjamin Netanyahu, Israel’s prime minister, said in an interview with Fox News that the attacks would continue until Iran’s capabilities to develop nuclear weapons and ballistic missiles had been destroyed.

President Donald Trump posted on his Truth Social platform early on Sunday morning that the US “had nothing to do with the attack on Iran”, but said his administration could “easily get a deal done” between the two countries to end the conflict.

Later in the day, he qualified that view, saying that although it was “time for a deal” between Israel and Iran, “sometimes they have to fight it out”. 

He also suggested it was “possible” that the US could become involved in the conflict at some point.

The Wood Mackenzie view

Wood Mackenzie analysts have been briefing clients on the implications and potential consequences of the conflict. Iran holds the world’s eighth-largest oil reserves and fourth-largest gas reserves, and is surrounded by other significant energy producers. About 20% of world LNG exports and almost 20% of world oil production pass through the Strait of Hormuz. Disruption to production and exports from the region could have a global impact.

Iran’s crude exports have rebounded strongly since the first Trump administration, reaching about 1.5 million, all of which moves through the Strait of Hormuz.

Fraser McKay, Wood Mackenzie’s head of upstream analysis, says those exports are highly dependent on the Kharg Island terminal. Any disruption to this facility would severely hamper the country’s ability to move crude – particularly via its “dark fleet” to China – cutting off a vital revenue stream.

Before the conflict flared up, the global oil market was on course to be oversupplied by the fourth quarter of 2025, as OPEC+ producers unwind their 2.2 million b/d voluntary production cut, says Ann-Louise Hittle, Wood Mackenzie’s head of Macro Oils.

Assuming the attacks continue to avoid oil production and export infrastructure, we would expect some of the risk premium in oil prices to ease over the next several weeks.

Given the uncertainty, Brent is unlikely to fall back to the previous recent lows of US$60 to US$65/bbl. But July could see an average of around US$70 to US$71/bbl for Brent, Hittle says.

For gas, the global impact of any disruption is likely to be smaller. Despite its huge reserves, Iran is only a minor gas exporter. Most of its 29 bcfd production is consumed locally. But disruption to its 1 bcfd of gas exports to Iraq, Türkiye and Armenia could increase regional volatility

Another impact on gas markets comes from Israel, which has suspended operations at its Leviathan and Karish fields and stopped its exports to Egypt and Jordan. Egypt relies on imports from Israel for about a sixth of its total gas supply. It has started restricting gas consumption in an attempt to prevent shortages for power generation causing blackouts.

Egypt has chartered two more floating storage and regasification units (FSRUs) and signed agreements to import more LNG. But supplies will be tight until those vessels are in operation, which is expected to be in the next few weeks.

The key risk of greater impacts, for both oil and gas, would emerge if Iran decided to attack shipping in the Gulf or the Strait of Hormuz. The impact of that on oil prices would be significant. Brent crude could move towards US$90 to US$100/bbl.

But that would be a sharp escalation that would further isolate Iran and hurt its improved relations with Saudi Arabia. The US has indicated that attacks on shipping in the Gulf would trigger a military response, exacerbating the consequences for Iran. That makes such a step unlikely.

The situation remains volatile, however, and markets are likely to stay on the alert for further shocks.

For the US, the crisis has been a reminder that, despite the rhetoric about “energy dominance”, the country still benefits from stable oil exports from the Middle East.

As a net oil exporter, the US can weather a surge in crude prices better than many other economies. But a rise in the price of fuel still has consequences for American consumers, sapping their spending power and potentially stoking inflation.

Those economic effects are a reason why the US will remain closely interested in how the conflict progresses.

In brief

A consortium led by ADNOC, Abu Dhabi’s national oil company, is launching a bid worth about US$19 billion for Santos, the Australian oil and gas producer. The board of Santos said on Monday it intended to support the bid, which offers a premium of about 28% to the company's share price at the close of trading on Friday. The bidding consortium also includes the Abu Dhabi Development Holding Company and Carlyle, the private equity firm.

Large data centres for AI and cryptocurrency present a significant near-term challenge to the stability of power grids, the North American Electric Reliability Corporation (NERC) has warned. In its new 2025 State of Reliability report, NERC warned that new data centres could be developed faster than the generation and transmission infrastructure needed to support them, resulting in lower system stability.

The report also highlighted concerns over data centres’ rapidly changing, often unpredictable, power usage, which creates new operating challenges. It concludes: “more accurate models of the operational characteristics of these impactful loads are essential to reliability to prevent instability caused by these large changes in electricity demand.”

The NERC report also discusses other issues for reliability of power supplies in North America, including the grid’s increasing reliance on inverter-based resources such as wind, solar and battery storage.

Amazon has increased the scale of its agreement to buy power from Talen Energy’s Susquehanna nuclear plant in Pennsylvania. The deal shows how fast expectations of the electricity needs of new data centres are growing.

Under the original agreement, announced in March of last year, Amazon bought the Cumulus Data campus from Talen and signed a 10-year deal to buy up to 960 megawatts of power for it from the nearby Susquehanna plant. Under the expanded deal, Talen will provide Amazon with 1,920 MW through to the end of 2042, for the site adjacent to Susquehanna and other locations in Pennsylvania. The power delivery schedule will ramp up over time, with an expectation of reaching the maximum level no later than 2032.

Talen and Amazon have also agreed to explore building new small modular reactors (SMRs) at Talen’s sites in Pennsylvania, and to look at uprates to increase the output of existing nuclear plants.

The new expanded agreement comes after the Federal Energy Regulatory Commission (FERC) twice rejected the previously proposed plans for serving Amazon. The new agreement makes it clear that the Susquehanna plant will be “in front of the meter”, connected to the PJM grid. That means the plan is not expected to require FERC approval, Utility Dive reported.

The World Bank is lifting its ban on financing nuclear energy projects. Ajay Banga, the bank’s president, said in an email to staff: “We will support efforts to extend the life of existing reactors in countries that already have them, and help support grid upgrades and related infrastructure.”

JERA, the Japanese power group, has agreed deals to secure up to 5.5 million tons per year (mmtpa) of LNG from the US over 20 years. The deals include sales and purchase agreements with NextDecade and Commonwealth LNG, and heads of agreement with Sempra Infrastructure and Cheniere. They add to existing offtake deals including contracts totaling 3.5 mmtpa with Freeport LNG and Cameron LNG, and a 1-mmtpa agreement with Venture Global CP2.

Congressional resolutions to block California’s ability to set electric vehicle mandates were signed by President Trump. California and 10 other states have filed a law suit to overturn the resolutions, which were passed after non-partisan government referees ruled that they could not be used to block California’s policies in that way.

Other views

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The global PV tracker market saw its strongest year ever in 2024, with shipments increasing 20% to a record 111 GWdc

The US solar industry faces a perfect storm of Federal policy and trade challenges – Zoë Gaston and Sylvia Leyva Martinez

US seasonal power outlooks Summer 2025: hot topics for ERCOT, MISO and PJM – Taoxuan Luo

Latin America embraces unconventional oil and gas exploration

ExxonMobil crowned most-admired upstream explorer in Wood Mackenzie 21st annual exploration summit survey

China’s car industry runs on empty as supply chain bills go unpaid – Gloria Li and Haohsiang Ko

Petrostate America: the downsides of energy independence – Michael Ross and Erik Voeten

Quote of the week

“Intermittent power sources are a parasite on the grid! President Trump’s One Big, Beautiful Bill cuts subsidies for unreliable sources of power that rely on external conditions to work.”

Chris Wright, the US energy secretary, posted on X in support of the steep cuts to tax credits for solar and wind power proposed in the budget legislation now being negotiated in Congress.

Chart of the week

This comes from the US Solar Market Insight Q2 2025 report, the latest quarterly overview of the industry published by the Solar Energy Industries Association (SEIA) and Wood Mackenzie. It shows new power generation capacity added in the US, by technology.

You can see how additions of new gas-fired capacity, which were common in the 2010s, faded away in the 2020s to be replaced by increased installations of renewables, and solar in particular. Solar was by some distance the leader in capacity additions between 2021 and 2024, and that trend continued into the first quarter of 2025.

One other noteworthy fact in the report is that the US added 8.6 GW of new solar module manufacturing capacity in the first quarter. That made it the third-largest quarter for new manufacturing capacity on record, bringing total US module manufacturing capacity to 51 GW, equivalent to the nation’s entire solar installations last year. However, most of that manufacturing is based on assembling imported cells. Capacity for producing polysilicon wafers and cells still lags well behind module manufacturing.

For more on the state of the US solar industry, check out the executive summary, or the full details that are available to Wood Mackenzie clients. And take a look at this opinion piece from Zoë Gaston and Sylvia Leyva Martinez from our solar research team.

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