Iran war upends commodities market

Oil price building in a “war premium”

Historically, oil prices were largely governed by economic growth, OPEC production discipline, and inventory levels. Today, naval maneuvers and military escalation are just as important.

The effects extend beyond direct supply disruption: elevated geopolitical risk has introduced a persistent “war premium” into crude oil prices, adding a new layer of risk on top of the traditional commodities cycle.

Despite the price escalation to date, some commentators warn that the oil price could move significantly higher and that markets remain relatively complacent based on current futures pricing. While the UAE’s departure from OPEC may support additional supply, others argue that large Chinese reserve buffers have masked the true impact of the crisis, leaving the market yet to fully price in the potential supply shock.

Impact on oil products intensifies

Within the broader energy complex, the impact of the conflict extends well beyond crude oil. Refined products such as diesel, jet fuel, and gasoline may be even more sensitive, as global refining capacity remains tight following years of underinvestment and ESG-driven capital restraint.

This leaves airlines, shipping firms, and logistics operators exposed not only to higher crude prices, but also to wider refining spreads and transport disruption. The aviation sector, for example, illustrates how higher jet fuel costs linked to the Iran conflict can feed through into ticket prices, with effects rippling across tourism, freight, manufacturing, and consumer price.

Natural gas a hostage to geopolitics

Russia’s invasion of Ukraine showed how natural gas and LNG markets are hostage to geopolitical events. The Iran conflict reinforces that lesson, illustrated by damage sustained by Qatar, a country at the heart of global LNG supply.

Any threat to Gulf shipping immediately reverberates through Asian and European gas markets. With LNG exports and liquefaction facilities facing disruption, sharp price spikes in spot LNG markets leave Asian importers – particularly Japan, South Korea, Taiwan, and India – facing renewed concerns over supply security and affordability.

The result is that governments are once again prioritizing energy security over pure market efficiency. Strategic reserves, long-term contracts, domestic production capacity, and supply diversification are once again at the center of policymaking. Permanently frictionless global energy trade can no longer be assumed.

Gold a hedge against political turmoil

Gold’s reaction to events signals another structural shift. Traditionally, gold rallies during geopolitical crises as investors seek safe havens. Yet while gold initially strengthened on the outbreak of war, inflation concerns and expectations of higher interest rates created periods of volatility and profit-taking, against a backdrop of rising US Treasury yields.

Nonetheless, investors increasingly view gold not merely as an inflation hedge but as protection against geopolitical turmoil. Gold prices were already supported by strong central bank buying in recent years, reflecting declining trust in dollar-centric reserve systems. The Iran conflict has intensified these concerns.

Other precious metals are likewise affected. Silver, platinum, and palladium serve both industrial and safe-haven functions. Supply chains for many of these metals remain geographically concentrated and vulnerable to sanctions, export controls, or transport disruption.

Knock-on effects on metals

Aluminum prices have surged amid fears of supply disruption and rising energy costs. Copper markets have also become increasingly sensitive to geopolitical risk, given copper’s central role in electrification, defense systems, grid infrastructure, and AI-related industrial expansion.

While ferrous markets such as iron ore and coking coal are less directly exposed to geopolitical chokepoints (with supply largely originating from Australia and Brazil), they are still affected through higher energy costs, freight disruption, and shifts in industrial demand.

In a world moving toward economic nationalism and strategic industrial policy, these materials are increasingly treated as strategic assets.

Agricultural commodities and food security risks

Agricultural commodities have not escaped. Oil shocks feed directly into food inflation, as modern agriculture is heavily dependent on fuel, fertilizer, and transport. Fertilizer markets are particularly exposed, with significant volumes of urea and sulfur transiting Gulf shipping routes.

As a result, the Iran conflict has heightened concerns over food security. Wheat, corn, and soybean markets have all reacted to fears of higher transport and fertilizer costs. Countries already vulnerable to food inflation and import dependency face renewed pressure.

Even where physical supply continues to flow, commodity traders face a new reality of higher transport costs, prolonged marine insurance premiums, and the diversion of shipping routes around conflict zones.

Commodities volatility inherently inflationary

This matters because modern commodity markets are deeply financialized, and volatility itself can become inflationary. Businesses facing unpredictable energy and raw material costs delay investment, reduce inventory exposure, and pass higher costs on to consumers.

Analysts warn that the true economic damage from geopolitical conflict lies not simply in higher prices, but in persistent uncertainty and the risk of market paralysis. Bond markets reflect concerns that prolonged commodity inflation could force central banks to keep interest rates higher for longer.

The conclusion is unavoidable. Commodities are no longer merely cyclical assets responding to economic growth; they are strategic instruments in an era of geopolitical turbulence.

The same combination of geopolitical volatility, inflation pressure, and higher-for-longer interest rates is also affecting other asset classes, as explored in our article: Investors exit private credit.

Intuition Know-How has a number of tutorials relevant to the content of this article:

• Commodities – An Introduction

• Commodities – Crude Oil
• Commodities – Oil Products
• Commodities – Natural Gas
• Commodities – LNG
• Commodities – Precious Metals
• Commodities – Ferrous Metals
• Commodities – Nonferrous Metals
• Commodities – Softs
• Inflation – An Introduction
• Inflation Indicators
• Monetary Policy
• Equity Markets – An Introduction
• Bond Markets – An Introduction

Frequently asked questions