Introduction

The recent escalation between Iran and Israel not only disrupted oil prices but also revealed how geopolitical instability intersects with commercial and legal vulnerabilities in the energy sector. It is not merely a geopolitical conflict but has a deeper economic crisis with profound implications for global economies, global supply chains, and the financial stability of households and businesses alike.

This blog analyses the crisis through the lens of commercial awareness—decoding how history, legal structures, regulatory risk, and global sustainability goals are affected by such crisis.

History of the crisis

The longstanding proxy conflict between Israel and Iran surged into direct confrontation in June 2025, marked by drone and aerial strikes. Iran responded with thinly veiled threats to disrupt shipping in the Strait of Hormuz—a vital artery through which roughly 20% of the world’s oil flows. The U.S., while historically allied with Israel, has adopted a cautious stance, wary of entanglement in a direct regional conflict.

Timeline Recap:

June 14: Iran sends drones into Israeli airspace.
June 16: Israel launches targeted strikes on Iranian assets.
June 18: Global oil prices spike by nearly 3%.
June 20: Analysts speculate on U.S. intervention and OPEC+ responses.
June 23–24: A provisional ceasefire is announced. Subsequent Israeli violations reignite concerns over long-term regional instability.

While the ceasefire has momentarily calmed markets, the vulnerability of the Strait of Hormuz continues to cast a shadow over global energy security and contractual obligations tied to oil supply and transport.

Impact of the crisis on the global economy

The broader economic fallout of sustained oil price volatility is significant. Many nations have already revised their inflation forecasts upward. Central banks may be forced to tighten monetary policy, derailing recovery strategies aligned with green growth and SDG targets.

Oil-importing countries like India and Japan face heightened fiscal stress due to fuel subsidies and reduced fiscal space for clean energy investment. Without adequate strategic reserves, these economies risk worsening current account deficits and triggering currency instability.

Meanwhile, sectors heavily dependent on transport and energy—such as aviation, shipping, and manufacturing—grapple with reduced margins. Small and medium enterprises, lacking hedging tools, are particularly vulnerable.

At the consumer level, households face rising energy and food costs. In regions where energy expenditure forms a larger share of household budgets, these shocks exacerbate energy poverty, stalling just transition pathways.

Impact of crude oil crisis on energy sector

Energy markets remain highly susceptible to conflict in the Middle East, especially around the Strait of Hormuz. Legal contracts in oil trading and shipping hinge on uninterrupted transit through this corridor. Any threat to its safety activates a cycle of contractual uncertainty, price volatility, and strategic recalibration.

Further, even speculative risk triggers pre-emptive trading behaviour, pushing futures prices higher before physical supply is affected. For instance, oil prices surged nearly 3% in mid-June 2025, reigniting concerns of a $100/bbl scenario. Countries heavily reliant on oil imports—particularly across Asia—face structural inflation risks, while businesses scramble to adjust procurement contracts and risk allocation models.

Having mentioned that, rising crude oil prices have a complex and dual-edged impact on the global net-zero agenda. On one hand, they may accelerate the clean energy transition by enhancing the competitiveness of renewables like solar and wind, encouraging investment in energy efficiency, and reducing overall demand for oil. Elevated prices often push consumers and industries toward lower-emission alternatives and incentivise policy frameworks supporting decarbonisation.

On the contrary, the same price surge can simultaneously hinder phasing out of fossil fuel. Higher profits from fossil fuels may prompt oil and gas companies to expand exploration and production, reinforcing reliance on carbon-intensive energy. These circumstances lead to risks of greenwashing, as corporations may continue fossil fuel operations while marketing superficial net-zero commitments. The disruption between sustainability goals and operational practices will undermine stakeholder/shareholder trust and obscures genuine progress.

Therefore, the oil price volatility affects the global climate targets immensely. However, this can be tackled through strong regulatory mechanisms such as carbon pricing, mandatory ESG disclosures, and incentives for clean energy. These measures help channel market reactions into long-term structural change, making sure that spikes in fossil fuel costs don’t derail global ambitions for a just and effective energy transition.

Lawsplained

In practice, this uncertainty must have alerted the commercial lawyers about the importance of force majeure clause in the agreements and to review it immediately. When oil exportation through the Strait of Hormuz will be threatened, companies will cite force majeure clause to suspend performance on delivery contracts. Recalling the 1973 oil embargo on nations supporting Israel in the Yom Kippur War—causing a 400% increase in oil prices globally. The embargo triggered recessions, supply chain crises, and a complete transformation of energy policy in the West. Thus, commercial lawyers must understand how conflict zones can trigger contract suspensions—and proactively draft bespoke clauses to allocate this risk before disputes arise.

Moreover, iif the ceasefire holds and regional diplomacy progresses, oil prices may stabilise, and OPEC+ might delay production adjustments. This could prevent a spike in strategic reserve usage and provide fiscal space for governments to prioritise sustainability-linked reforms.

Conclusion

The current scenario underscores that geopolitical crises are not isolated foreign affairs—they reverberate through contracts, climate goals, and compliance frameworks. Therefore, the fossil-fuel economy remains deeply intertwined with global risk, and meaningful transition to net-zero will require not just cleaner energy, but more resilient laws and markets.

The Lawsplain

Crude Oil Crisis 2025: Legal & Commercial Impact

Introduction

History of the crisis

Timeline Recap:

Impact of the crisis on the global economy

Impact of crude oil crisis on energy sector

Lawsplained

Conclusion

References

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