Israeli offensive on Iran raises fears of regime collapse and global oil shock

Despite Israel bombing Iran—OPEC’s third-largest crude oil producer—for eight consecutive days, the oil market has shown surprising restraint, CNBC reported. There remains no sign of the conflict abating in the near future.

That calm could soon vanish after the United States unexpectedly entered the fray on Saturday, launching strikes on three Iranian nuclear sites in Fordo, Natanz and Esfahan.

Oil prices have already surged by around 10% since Israel launched its initial attack, though both US crude and the global benchmark Brent have stayed below US$80 per barrel.

Mounting risk

According to energy analysts, the longer the hostilities continue, the higher the risk of a supply disruption that could cause prices to spike dramatically.

US President Donald Trump has previously issued threats against Iran’s Supreme Leader Ayatollah Ali Khamenei. Analysts warn that if the Iranian leadership perceives its survival to be at risk, it could retaliate by targeting regional oil infrastructure.

Scott Modell, CEO of the consultancy Rapidan Energy Group, said Israel’s primary objective is to dismantle Iran’s nuclear programme. However, he added that Jerusalem appears to have a secondary goal: to weaken Iran’s security apparatus so domestic opposition can challenge the regime.

“They’re not calling it regime change from without, they’re calling it regime change from within,” said Modell, a former CIA officer and Iran expert who served in the Middle East.

Official denials

Prime Minister Benjamin Netanyahu has denied that regime change is Israel’s stated objective, telling a public broadcaster on Thursday that Iran’s internal affairs are a matter for Iranians alone. He did concede, however, that the regime could fall as a consequence of the conflict.

On Friday, Defence Minister Israel Katz instructed the military to intensify strikes with the aim of “destabilising the regime” by targeting the “foundations of its power”. It has been reported that Israel initially sought to assassinate Khamenei at the start of its campaign, but Trump vetoed the plan.

According to Modell, there is no immediate indication that the Iranian regime is on the brink of collapse. However, Natasha Kaneva, head of global commodities research at JPMorgan, warned that further political destabilisation in Iran “could lead to significantly higher oil prices sustained over extended periods”.

Historical precedent

JPMorgan noted that since 1979, there have been eight instances of regime change in major oil-producing countries. In those cases, oil prices spiked by an average of 76% at their peak, before stabilising at levels roughly 30% higher than pre-crisis prices.

For example, prices nearly tripled from mid-1979 to mid-1980 following the Iranian revolution that deposed the Shah and ushered in the Islamic Republic, sparking a global recession. 

Similarly, Libya’s 2011 revolution, which ousted Muammar Gaddafi, saw oil prices leap from $93 to $130 per barrel within three months—coinciding with the European debt crisis and nearly triggering another global downturn.

Greater than Libya

Modell noted that a regime collapse in Iran would have a far more dramatic effect on oil markets than Libya’s revolution, due to Iran’s significantly larger production levels.

“We would need to see some strong indicators that the state is coming to a halt, that regime change is starting to look real before the market would really start pricing in three plus million barrels a day going offline,” Modell said.

Should Iran perceive the situation as an existential threat, it may use its arsenal of short-range missiles to strike energy facilities across the region or target oil tankers in the Persian Gulf, said Helima Croft, head of global commodity strategy at RBC Capital Markets.

Tehran could also mine the Strait of Hormuz, a narrow waterway between Iran and Oman through which about 20% of the world’s oil passes, Croft said.

“We’re already getting reports that Iran is jamming ship transponders very, very aggressively,” Croft told CNBC’s “Fast Money” on Wednesday. QatarEnergy and the Greek Shipping Ministry have already warned their vessels to avoid the strait as much as possible, Croft said.

“These are not calm waters even though we have not had missiles flying in the straits,” she said.

Inflation concerns

Market watchers are increasingly worried about the broader economic implications of rising oil prices. According to Reuters, surging oil could fuel inflation, eroding consumer confidence and reducing the likelihood of near-term interest rate cuts.

Saul Kavonic, a senior energy analyst at MST Marquee in Sydney, said Iran may retaliate by targeting American interests in the Middle East—particularly oil infrastructure in Iraq—or by interfering with navigation through the Strait of Hormuz.

The strait serves as the main export route for oil producers including Saudi Arabia, the United Arab Emirates, Iraq and Kuwait.

"Much depends on how Iran responds in the coming hours and days, but this could set us on a path towards $100 oil if Iran respond as they have previously threatened to," Kavonic said.

Rising oil demand

According to the OPEC Monthly Oil Market Report published on June 16, the global economy performed better than expected in the first half of 2025. 

Data indicated stronger-than-anticipated growth in India, China, and Brazil during the first quarter, while the United States maintained solid economic fundamentals. The eurozone also showed slight improvement compared to the previous year.

This solid foundation in the first half of the year is expected to provide sufficient support and momentum for the second half of 2025. 

A key positive factor is the partial conclusion of trade agreements between the United States and several of its partners, which has helped reduce uncertainties and may lead to a partial normalisation of trade, thereby easing distortions in trade growth.

As a result, consumption and investment are expected to remain stable amid greater clarity in the 90-day period following the US customs duty review—covering the months of July and August. 

This environment is projected to support global oil demand, which is expected to grow by an average of 1.4 million barrels per day year-on-year in the second half of 2025, with full-year growth forecast at 1.3 million barrels per day.

Oil demand within the Organisation for Economic Co-operation and Development (OECD) is expected to rise by 900,000 barrels per day compared to the previous year during the second half of 2025, driven largely by the United States.

In terms of products, jet kerosene and petrol are anticipated to be the primary drivers of demand in the region, bolstered by the summer driving season and sustained air travel activity.

However, diesel demand is projected to decline due to subdued economic and industrial activity, while naphtha demand may face pressure from reduced petrochemical margins. Overall, oil demand in the OECD is forecast to average 16 million barrels per day in 2025.

For non-OECD countries, demand growth will be primarily driven by other parts of Asia, with strong contributions from China and India. Oil demand is expected to benefit from a continued recovery in air travel, robust driving activity, and improvements in the manufacturing sector.

Non-OECD oil demand is forecast to grow by an average of 1.3 million barrels per day year-on-year in the second half of 2025. Petrol and jet fuel are projected to lead the growth in demand, followed by diesel, LPG, and naphtha. In total, oil demand in non-OECD countries is expected to reach 1.1 million barrels per day in 2025.

Thailand monitors Iran-Israel conflict

Last week, Prime Minister Paetongtarn Shinawatra instructed the Ministry of Energy to reform Thailand’s energy structure to ensure greater security, fairness, and sustainability. The aim is to ease the public's energy burden while restoring investor confidence both domestically and internationally.

She also called for close monitoring of the ongoing conflict between Iran and Israel.

Energy Ministry Permanent Secretary Prasert Sinsukprasert reported that Thailand’s energy usage and imports had risen significantly over the past year. Crude oil imports accounted for more than 93% of domestic demand, while electricity consumption reached 210 billion units—up more than 5% year-on-year. 

The national peak electricity demand reached 36,792 megawatts, also a 5% increase.

As part of its core missions, the ministry outlined measures to reduce the cost of living, particularly by lowering electricity tariffs. Throughout 2024 and into 2025, electricity rates have continued to decline.

For fuel prices, the ministry used the Oil Fuel Fund to cushion the impact of high global oil prices. It successfully reduced the fund’s debt from over 120 billion baht last year to around 36.20 billion baht at present. It has also maintained price caps on LPG and NGV, essential fuels for people’s livelihoods.

The ministry is also accelerating efforts to drive a “green economy” in energy, covering both consumption and supply. 

On the consumption side, the government has promoted energy reduction in state agencies, cutting electricity use by over 110 million units and reducing oil consumption by more than 4 million litres in the past year. It is also supporting public access to clean energy technologies.

On the supply side, efforts include legal and regulatory reforms to streamline the permitting process for solar rooftop systems, encouraging both individuals and businesses to adopt renewable energy. 

The ministry is also preparing for petroleum exploration and production auctions for both onshore and offshore sites, and is exploring the potential of LNG imports from Alaska—a promising source that could reduce procurement costs.

In terms of environmental protection, the ministry has been working with the Ministry of Industry, Ministry of Agriculture and Cooperatives, and Bangkok Metropolitan Administration to tackle PM2.5 dust pollution.

Looking ahead, plans are underway to develop electricity generation from Small Modular Reactors (SMRs), and to promote the use of Sustainable Aviation Fuel (SAF) in the aviation sector. This will involve cooperation with the Ministry of Transport, the International Civil Aviation Organisation (ICAO), the Ministry of Industry, and the Ministry of Finance to help reduce carbon emissions.

Infrastructure is also being prepared to support hydrogen energy—a rising global trend. The government is exploring the use of existing petroleum fields for carbon capture and storage (CCS).

To implement cross-ministerial policy coordination, the Energy Ministry has been engaging with relevant agencies. These include:

• Discussions with the Royal Forest Department, Department of National Parks, Wildlife and Plant Conservation, Fine Arts Department, and the Agricultural Land Reform Office regarding the use of petroleum exploration areas;
   
• Collaboration with the Ministries of Finance and Industry to promote biofuels in the industrial sector;
   
• Joint efforts with the Ministry of Finance, Comptroller General’s Department, and the Budget Bureau to support solar rooftop adoption;
   
• Carbon capture initiatives involving the Ministries of Finance and Natural Resources and Environment, the Hydrographic Department, and Marine Department.
   

On the Iran-Israel conflict, the ministry is prepared to shield the public from price impacts by using the Oil Fuel Fund to maintain stability. It has also tasked relevant agencies with reviewing national oil reserves to ensure alignment with global developments and pledged to adjust the energy structure as necessary.

Next year, Thailand will host Gastech 2026, a major international exhibition and conference on natural gas, scheduled for September 2026. The event is expected to generate over 4.1 billion baht in revenue for the country.

The Ministry of Energy continues to focus on its three key pillars of energy policy:

• Energy security – Ensuring a stable supply and use of energy, with an emphasis on securing cheaper energy sources;
   
• Energy as a driver of economic growth – Promoting green electricity to attract foreign investment, particularly in manufacturing and data centres;
   
• Low-carbon energy – Encouraging clean energy production, especially solar power, and promoting energy conservation across both public and industrial sectors.