Israel’s Preemptive Strikes on Iran – June 13, 2025

June 13, 2025

Israel has conducted significant airstrikes against Iran, targeting nuclear sites, scientists, and military leaders. In response, financial markets are volatile today, especially commodities as crude oil prices spike. How this event influences markets from here will depend greatly on what happens in the coming days and weeks in terms of continued Israeli strikes and Iran’s response, in particular if Israel attacks Iran’s oil infrastructure and if Iran chooses to target American assets or global shipping through the Strait of Hormuz.  

Iran’s Significance to Markets:
Iran currently supplies roughly 5% each of global oil and natural gas production, and is a top five country for both in terms of proven reserves. Iran also borders the Strait of Hormuz, the narrow waterway connecting the Persian Gulf to the Gulf of Oman, through which passes roughly 20% of global oil production (including the majority of Iran’s oil exports). Oil and natural gas make up 82% of Iran’s exports. China its primary buyer of oil, while Turkey and Iraq are its primary buyers of natural gas. Oil is a true globalized commodity as it is easily shipped via tankers, and thus world oil prices are spiking today more than natural gas prices, which are more localized and primarily shipped via pipeline. Natural gas prices are becoming more globalized via liquified natural gas (LNG) shipping, but Iran is not yet a major participant in that market.

GGS Thoughts:
While the timing was unexpected given that the United States and Iran were scheduled to hold continued nuclear talks on Sunday in Oman, the Israeli strikes were not a complete surprise. With US/Iran negotiations going poorly, WTI crude oil prices has already risen from roughly $60/barrel on May 30 to $68/barrel yesterday before the attacks as investors started pricing in this possibility. At this morning’s $74/barrel, oil prices have risen significantly off the $57/barrel May 5 bottom, but are still only back to January 2025 levels, and thus should not be a major impediment to economic growth or inflation.

Events like this underscore why we believe it is important to have a diversified core portfolio with exposure to sectors such as oil & gas, even if the long-term return on invested capital (ROIC) for that industry has been poor. We do not see the need to make major changes today, as we are comfortable with the level of sector, industry, company, and geographic diversification already present in client equity portfolios. We hope for a quick and peaceful resolution to this conflict, but we have conservatively positioned client portfolios in case the situation worsens. We continue to recommend staying fully invested at the target risk level chosen with your GGS advisor to best meet your long-term goals and objectives.

Sources:

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