The Iran Situation
Implications for the Global Economy and Property Markets as of June 26, 2025
Over the past several weeks, Israeli missile attacks on Iran and subsequent retaliation ramped up geopolitical tensions globally. U.S. bombing of Iran’s nuclear assets broadened the scope of the conflict, and while a ceasefire between Israel and Iran has been brokered, the situation remains fluid and uncomfortable from a geopolitical risk perspective.
As of publication date, June 26, the situation has stabilized, which is good news for the global economy and property markets. Our baseline assumption is that military conflicts do not escalate further, and that any economic disruptions will be temporary and unlikely to materially change the trajectory of global growth. However, we consider the implications should downside scenarios develop in the coming months.
Impact on Global Economy
Oil Prices: The most immediate risk to the global economy is the potential for oil supply disruptions, which could result in higher energy costs. So far, those risks have not materialized. Prior to the airstrikes in Iran, Brent crude was trading near $60 per barrel. The price briefly rose to $77, then receded to $68 on June 24 after a ceasefire was reached.
Disruptions to energy markets have been minimal for several reasons. First, Iran contributes only 5% of global oil production, ranking as the fifth-leading producer—the U.S. is the largest with 20% of global production. Moreover, the world is not short on oil. Saudi Arabia and the UAE collectively have 5–6 million barrels per day of spare production capacity. In addition, non-OPEC producers, such as the U.S., Brazil and Canada, bring online roughly 1.3 million additional barrels per day. So, the global energy system has both resilience and flexibility heading into this crisis.
That is not to say that energy risks should be marginalized. Should tensions escalate and Iran choose to blockade oil shipments through the Strait of Hormuz (a severe downside scenario with low probability), a significant portion of energy trade would need to be rerouted, raising costs and increasing delivery times. Analysts estimate that oil prices could nearly double under this scenario to $120-$130 per barrel, reducing global growth by about 0.3% through 20261. Shipments through the Strait total about 21 million barrels per day, making it arguably the most important chokepoint for energy trade globally. Some transporters have already willingly altered routes amid the region’s tensions.
Inflation and Monetary Policy: Energy costs account for a significant portion of costs for both businesses and consumers. For example, the energy component of the U.S. consumer price index (CPI) makes up 21.5% of the overall index, so market shocks have a sizable impact on inflation readings. Amid muted energy prices up until this conflict, energy prices have been a small negative contributor to CPI over the past year, bringing it down by 0.2%. Although the Federal Reserve and many other central banks typically prefer to focus on core readings of inflation—which strip out energy prices—a prolonged conflict resulting in persistently higher energy costs would likely factor into the Fed’s decision-making process given other inflation risk factors such as tariffs.
Consumption: Given the importance of energy prices in most households’ budgets, there are secondary risks to the consumer outlook if higher gasoline prices erode spending power. A rule of thumb suggests that each $10 per barrel increase in oil prices results in a $0.24 per gallon increase in gasoline costs. As of June 25, average pump prices in the U.S. were $3.23 per gallon compared to $3.47 at the same time last year, so there is a buffer for prices to rise modestly without doing much harm to consumer spending. Gas prices can have an outsize impact on consumer sentiment, which has already been pressured given higher inflation expectations and economic weakness resulting from tariffs. While retail spending remained resilient in the early part of 2025, retail sales fell 0.9% in May in what could be an early sign that the pessimistic consumer psyche is translating into more cautious spending.
Regional Implications: Globally, markets in the Middle East are most susceptible to a prolonged conflict. While large energy producers such as Saudi Arabia and UAE could potentially benefit from the need to resource lost output from Iran, the region as a whole would likely experience net-negative economic impacts due to less demand for incoming travel and foreign investment. It is possible that non-oil trade would suffer if shippers reroute container ships away from the region, resulting in higher transport costs. The region has seen an influx of tourism and capital investments in recent years, spanning sectors such as hotels and leisure, renewable energy, electric vehicles, and, more recently, data centers and artificial intelligence. A rise in regional instability could dampen investor enthusiasm, including for property. Outside of the Middle East, China has the most to lose in a downside scenario, as more than one-third of its crude oil transits through the Strait of Hormuz.
Within the U.S., local economies that are more reliant on energy production will fare better than others. Higher oil prices would incentivize increases in production, potentially leading to higher rig counts, which could spill over into more capital investment, hiring and construction. On the other hand, markets in which energy costs are a larger portion of spending—typically in the South where driving distances to consumption hubs are longer—would see higher costs of transporting goods and relatively higher strain on consumers.
Impact on Property Markets
There is no shortage of downside risks when it comes to geopolitics. But it’s worth remembering: The global economy and property markets have repeatedly demonstrated resilience in the face of major shocks—be it Russia-Ukraine, Israel-Hamas, OPEC production cuts, or Red Sea disruptions.
While commercial property is never immune to geopolitical risk factors, the sector is well-positioned to weather the current situation with minimal disruptions. Momentum has been building across many asset classes in terms of both leasing demand and investment activity. The sector has been a relative outperformer in the uncertain environment due to its long-run, income-generating feature at a time when other asset values are susceptible to market volatility. That said, it is worth thinking about how a worst-case scenario might impact various sectors: Logistics, retail and hospitality sectors stand the most to lose under an oil price shock.
As always, real estate decision-making is about managing risk, not eliminating it. Based on current fundamentals, the odds still favor a base-case outcome in which this conflict does not spiral into a worst-case scenario. That said, we will continue to monitor developments closely and provide timely updates as the situation evolves.
1 Oxford Economics
