The conflict between Iran and Israel has moved into the economic heart of the Middle East: energy infrastructure. Over the weekend, Israeli drone strikes reportedly targeted key components of Iran’s petroleum and gas network, including the South Pars natural gas field and a major refinery in Tehran. These strikes have brought renewed attention to a longstanding geopolitical risk—the concentration and fragility of energy systems in the Gulf region.
Iran’s energy exports remain a crucial lifeline for its economy and a major lever in its international positioning. Almost all of its crude oil exports originate from a single location: Kharg Island. The coral islet in the Persian Gulf serves as the departure point for nearly every barrel Iran sells abroad. While Tehran has attempted to diversify its export infrastructure by developing the port at Jask, its current capacity is limited and unable to replace Kharg’s strategic role.
Damage to facilities like South Pars or refineries near Tehran does not just threaten Iran’s domestic energy security; it also jeopardizes a sector that has seen fragile recovery in recent years. Since 2020, Iranian oil production has risen approximately 75 percent to 3.4 million barrels per day, with export revenues nearly quadrupling to an estimated $78 billion in 2024. These gains, however, are still constrained by Western sanctions, aging infrastructure, and limited international investment.
Iran’s energy sector also suffers from a shortage of partners. Global oil majors have long avoided Iran due to geopolitical risks, in contrast to neighboring Qatar, which has successfully developed its liquefied natural gas capacity with the help of Western firms. The result is that Iran, despite its vast reserves, often struggles to meet domestic energy demand and is ill-equipped to handle major facility damage without foreign support.
On the other side of the conflict, Israel’s own energy system is not immune. The country halted production at two of its three offshore natural gas platforms, including Leviathan, which supplies most of Israel’s electricity and exports gas to Egypt. Israel is also heavily reliant on imported oil via its southern port at Ashkelon, a potential choke point if tensions escalate.
A prolonged conflict threatens to destabilize not just the local economies but global energy markets as well. More than 14 million barrels of oil pass daily through the Strait of Hormuz, along with 21 percent of global LNG shipments. Any disruption in this narrow waterway—especially one involving Iran, which controls much of the northern coast—could have ripple effects across Asia and beyond.
As tensions rise, energy analysts are watching for signs of broader escalation. While the immediate impact may be limited to targeted strikes, the strategic importance of oil and gas infrastructure means the stakes are far higher. For a global market still recovering from prior supply shocks, the fallout from any expanded conflict in the Gulf could be severe.