Israel's ongoing attacks on Iran could lead to regime collapse, with major oil price consequences

The Israeli military has been bombing Iran for eight days straight, and senior officials now say this could lead to the collapse of Tehran’s regime. If that happens, the oil market is staring down a potential global price surge.

According to a report by CNBC, this war is not only about nuclear weapons. It’s now inching toward a possible power vacuum in one of the most important oil-producing countries in the world.

So far, prices have gone up about 10%, but both Brent and US crude are still below $80 per barrel. That’s because the fighting hasn’t touched physical oil flows… yet. But analysts are warning that the longer this war goes on, the harder it’ll be for global markets to stay calm.

Israel raises the stakes as Trump signals support

President Donald Trump has publicly threatened Ayatollah Ali Khamenei and is reportedly considering backing Israel in its plans to hit Iran’s nuclear infrastructure. Officials in Washington and Jerusalem are now talking about political consequences.

Defense Minister Israel Katz told the army to escalate attacks with the aim of “destabilizing the regime.” Prime Minister Benjamin Netanyahu, while denying that regime change is the official goal, did admit that the current Iranian leadership might not survive the war.

Scott Modell, a former CIA officer and now CEO of Rapidan Energy Group, said Israel wants to weaken the regime’s military control to give domestic opposition a shot at toppling the system from inside. “They’re not calling it regime change from without, they’re calling it regime change from within,” Modell said. Israel reportedly planned to kill Khamenei early in the campaign, but Trump blocked the decision.

Despite the talk, Modell added that there’s no actual sign the regime is about to collapse. But Natasha Kaneva, who leads global commodities research at JPMorgan, warned that if the country starts falling apart politically, oil prices could stay much higher for a long time.

Real supply shocks could be coming

JPMorgan tracked eight cases of regime change in oil-producing countries since 1979. On average, oil prices spiked 76% during those periods and later settled about 30% higher than before. After the 1979 Iranian revolution, oil prices nearly tripled, leading to a global recession. In 2011, when Libya overthrew Muammar Gaddafi, prices jumped from $93 to $130 per barrel in just three months, nearly dragging the global economy into another crisis.

Scott Modell said a similar fall in Iran would be far more damaging than Libya’s case because Iran exports a lot more oil. “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,” he said.

If the regime feels cornered, the risk isn’t just about oil fields being hit. Helima Croft, head of commodity strategy at RBC Capital Markets, said Tehran could go after tankers in the Persian Gulf or even try to block the Strait of Hormuz, the tight channel between Iran and Oman that moves 20% of global oil.

“We’re already getting reports that Iran is jamming ship transponders very, very aggressively,” Croft said. She also mentioned that QatarEnergy and Greek authorities are warning ships to avoid the area.

So far, there are no missiles flying across Hormuz, but nobody’s ruling it out. Rapidan Energy Group believes there’s a 70% chance the US will join airstrikes on Iran’s nuclear sites. If that happens and the Fordow uranium facility is hit, Scott Modell said oil prices could jump by $4 to $6 per barrel. Iran might respond in a limited way just to stay in control, but there’s still a 30% chance it hits regional energy infrastructure or stops oil tankers in the Gulf.

Bob McNally, founder of Rapidan and former energy adviser to President George W. Bush, warned that the market is underestimating how long Hormuz could stay blocked if Iran gets serious. “They could disrupt, in our view, shipping through Hormuz by a lot longer than the market thinks,” he said.

Traders expect the US Navy to reopen the strait in hours or days, but McNally said it could actually take weeks—or months. “It would not be a cakewalk,” he said.

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