The world is more resilient and energy-efficient than in the 1970s, yet broader structural vulnerabilities persist and could hit Asia hard.

Global stock markets have experienced a rollercoaster ride during US President Donald Trump’s trade wars. He rolled the dice again by authorising strikes on Iran, but he could yet get lucky if Israel and Iran can stick to a ceasefire.

Trade wars and hot wars have opposite effects on oil prices. Having dropped to about US$60 per barrel in early May from fears over Trump’s tariffs, oil prices have seen swings since the start of the Israel-Iran war.

The impact of the fighting on oil prices was comparatively modest before the US joined the fray, with Brent crude hovering below US$75. Oil prices rose immediately after US bombers and submarine-launched missiles struck three Iranian nuclear facilities before experiencing a sharp reversal.

Prices fell below US$69 during Tuesday’s trading, returning to where they were before Israel began attacking Iran on 13 June. After Iran gave advance warning before launching missiles at the Al Udeid US military base in Qatar on Monday, markets seem to be betting that Iran will not weaponise oil in its retaliatory strikes.

Markets also seem unbothered by the supply of oil. Global inventory rose by 93 million barrels in May, and producers from outside the Opec+ cartel are expected to increase supply by 1.4 million barrels per day this year. Global capacity is expected to grow twice as fast as demand in the next five years, according to the International Energy Agency.

Compared to the oil crises in the 1970s, the conflict between Israel and Iran has had less impact thanks to technological advances. The world has become more resilient through improved energy efficiency, and renewable energy has been widely embraced. The rapid transition to electric vehicles, particularly in China, is significant. The IEA expects EVs to displace an estimated 5.4 million barrels per day of oil demand by the end of the decade, up from 1.3 million last year.

The direction of potential impact has shifted. The US suffered stagflation during the oil embargoes of the 1970s, but the shale revolution has enabled it to become a net exporter of oil. Meanwhile, China’s rapid industrialisation in recent decades has led it to replace the US as the world’s leading energy importer.

Iran’s actions will go a long way towards determining the course of oil prices in coming weeks. If it can reach an agreement with Israel and the US after a ceasefire, unimpeded transport in the Strait of Hormuz — through which about one-fifth of global oil and natural gas production travels — could continue. Although Iran’s parliament approved closing the strait in response to the US attacks, such a move would be risky and self-defeating.

First, doing so would undermine Iran’s own economic position in a difficult time given the importance of its oil exports which go through the Strait of Hormuz. Second, it would hurt China, a key ally and buyer of Iran’s oil. Iran exports about 1.7 million barrels of oil per day, mostly to China. Third, the impact of the closure would fall less on the US than it would on Asia given the former’s greater energy self-sufficiency and the latter’s reliance on oil exports from the Middle East.

While rising energy prices will affect consumers and industries around the world, they could benefit US oil producers if oil shipments from the Middle East are disrupted. The US is the world’s leading oil exporter outside the Middle East and sanctioned Russia. Further disruption to world energy markets could come from the Sanctioning Russia Act of 2025. The bill, which has 84 co-sponsors in the 100-seat US Senate, is under consideration and could bring 500% tariffs on countries importing Russian energy.

China’s huge industrial base has helped it become the world’s leading energy consumer, with industrial use making up 60% of the country’s electricity consumption. Despite falling levels of oil imports last year and an energy self-sufficiency rate of 85%, China is still the world’s largest oil importer. While oil makes up only about 18% of China’s energy mix, it remains a key energy vulnerability as the country imports about 70% of its oil needs.

China is moving to diversify its energy supply away from Middle Eastern oil, and it is in the midst of a major nuclear power expansion drive. The adoption of renewable power in the country is growing rapidly, reaching 39% of power generation during the first quarter this year. Given the pace of its green transition, China is expected to hit peak oil consumption in 2027.

Global oil markets stand at a precarious crossroads as decades of technological progress and structural safeguards face unprecedented geopolitical risks. Unlike the cataclysmic price surges of the 1970s, today’s conflicts have elicited only measured volatility, though the swings between modest premiums and abrupt reversals betray an underlying fragility.

A ceasefire between Israel and Iran that holds would offer a reprieve from Middle Eastern tensions, and the immediate trajectory of oil prices could stabilise. Despite that, broader structural vulnerabilities persist.

Oil remains the common thread through simultaneous conflicts, from Ukraine’s front lines to the Strait of Hormuz. While a ceasefire between Israel and Iran could remove one major flashpoint, overreach through economic warfare risks triggering the very supply disruptions that a hot war has so far avoided. After the collective strides of the last half-century in building energy security, the world does not need another energy crisis.

Republished from the South China Morning Post, 24 June 2025

The views expressed in this article may or may not reflect those of Pearls and Irritations.