Geopolitical Upheaval Brought by the 2025 Iran-Israel War

In-depth analysis of the 2025 Middle East geopolitical upheaval and its impact on the global economy, Trump administration’s foreign policy, and South Korea

• Causes and developments of the 2025 Iran-Israel war
• Shock scenario analysis of the war’s impact on international oil prices, financial markets, and the global economy
• Trump administration’s response and South Korea’s strategic opportunities and risks

Part I: From Shadow War to Full-Scale Conflict – The Iran-Israel War

Explosion of Decades-Long Conflict

Relations between Iran and Israel dramatically shifted after the 1979 Iranian Islamic Revolution. Previously friendly, Iran’s establishment of a theocratic regime redefined Israel as an “evil,” turning the relationship into fundamental hostility.

This hostility persisted for decades as a “Shadow War”. Iran indirectly attacked Israel through proxies like Hezbollah and Hamas, while Israel retaliated with assassinations of Iranian nuclear scientists and cyberattacks. This fragile balance was broken in 2024 when both countries directly attacked each other’s homelands, setting the stage for full-scale war in 2025.

Operation “Rising Lion”: Israel’s Large-Scale Preemptive Strike

In the early hours of June 13, 2025, Israel launched a massive preemptive strike against Iran under the codename “Rising Lion”. The operation aimed to fundamentally eliminate Iran’s nuclear threat.

About 200 fighter jets targeted key nuclear facilities such as Natanz and Fordow, as well as military command centers. The strike was essentially a “decapitation operation” aimed at eliminating Iran’s military leadership and nuclear scientists.

The airstrike killed top commanders including the Iranian Chief of Staff and the Revolutionary Guards’ commander, along with numerous nuclear scientists. Initial casualties exceeded 224 dead and hundreds wounded, plunging the entire Middle East into the vortex of war.

Operation “True Promise 3”: Iran’s Missile Retaliation

In response, Iran’s Supreme Leader Ali Khamenei declared strong retaliation and launched “Operation True Promise 3”, firing hundreds of Shahed drones and approximately 150–200 ballistic missiles at key Israeli sites including the Defense Ministry headquarters in Tel Aviv.

Despite Israel’s multilayered air defenses and U.S. support, some missiles penetrated the defenses and reached Israeli territory, causing civilian casualties. This exposed both the limits of Israel’s air defense and Iran’s strike capabilities, escalating the conflict.

U.S. Intervention and the 12-Day War

Initially limited to defensive support, the Trump administration shifted gears on the ninth day of the war by directly attacking Iran. U.S. forces bombed three key Iranian nuclear facilities including Fordow and Natanz.

After 12 days of fighting, both sides agreed to a ceasefire, but the war inflicted massive damage. Israel suffered billions of dollars in economic losses, while Iran’s military leadership and nuclear program were severely damaged.

Political Fallout: Netanyahu’s “Rally-Around-the-Flag Effect”

The full-scale war marked a turning point for Israeli Prime Minister Benjamin Netanyahu, who had been politically embattled. The national crisis triggered a “rally-around-the-flag effect”, uniting Israelis beyond ideological divides.

Netanyahu’s approval ratings surged sharply after the war began, overtaking rivals as the most favored prime minister candidate within a year. Operation “Rising Lion” not only neutralized Iran’s nuclear program but also dramatically extended Netanyahu’s political life.

Part II: Shockwaves Hitting the Global Economy

Oil Price Shock and the Strait of Hormuz Crisis

News of Israel’s airstrikes sent Brent crude prices soaring 13% intraday, surpassing $80 per barrel. This spike reflected fear of future disruptions—known as the “geopolitical risk premium”—rather than immediate supply shortages.

Market fears concentrated on the Strait of Hormuz, through which 20% of global seaborne oil passes. Iran’s parliament passed a resolution to block the strait, posing a real threat to the world economy.

However, if the conflict does not prolong, OPEC+ production capacity increases and U.S. strategic petroleum reserve releases could gradually stabilize prices.

Economic Impact Analysis by Scenario

The war’s global economic impact can be divided into three scenarios based on conflict intensity. The most realistic scenario appears to be limited clashes followed by negotiations.

Inflation Reignition and Financial Market Risk Aversion

Rising oil prices and shipping costs could reignite global inflation, delaying central banks’ rate cuts and entrenching a “higher for longer” interest rate environment, hindering economic recovery.

Financial markets may see a pronounced “risk-off” shift, with funds flowing from equities to safe havens like the U.S. dollar, government bonds, and gold.

Part III: Trump Administration’s “Grand Bargain”

“America First” and Transactional Diplomacy

The returning Trump administration’s Middle East policy is grounded in the “America First” principle, prioritizing U.S. national interests over alliances or international norms, and approaching diplomacy as a series of deals.

The 2018 withdrawal from the Iran nuclear deal (JCPOA) symbolized this approach.

Crisis Response: Support for Israel and Direct Intervention

The Trump administration publicly supported Israel’s preemptive strike and refused to sign the G7 joint statement, pursuing an independent course.

On the ninth day of the war, U.S. forces directly bombed Iranian nuclear sites as the peak of a “Maximum Pressure” strategy to bring Iran to the negotiating table.

President Trump publicly pressured Iran’s leadership on social media with the message “UNCONDITIONAL SURRENDER!”

Ultimate Goal: A New “Grand Bargain”

The administration’s final aim is not war but a comprehensive “Grand Bargain” surpassing the JCPOA, based on overwhelming U.S. leverage.

This new deal would permanently freeze and dismantle Iran’s nuclear program, restrict ballistic missile development, and halt proxy activities in the region.

It represents a macro strategy to reshape Middle East security and maximize U.S. economic interests.

Part IV: Strategic Limits of Major Powers Exposed

The Iran-Israel war revealed the limitations of other major powers, especially China and Russia, in Middle East influence beyond the U.S.

China’s Calculated Neutrality and Dilemma

China, a strategic partner of Iran but economically tied to Israel and Gulf states, found it difficult to take sides.

Ultimately, China limited itself to rhetorical condemnation without military or economic support, prioritizing energy security and Belt and Road protection, revealing its still limited Middle East influence.

Russia’s Limited Response

Russia, another Iranian ally, was weakened by the Ukraine war and showed impotence.

Aside from formal condemnations, Russia took no substantive action, signaling its diminished status from global power to regional actor.

Part V: Implications and Strategy for South Korea

Impact of the Iran-Israel War on the Korean Economy

South Korea, dependent on the Middle East for about 70% of its crude oil imports, is structurally vulnerable to this crisis.

Rising oil prices and logistics disruptions could directly impact multiple industries. Is your industry prepared?

• Negative impacts: Refining, petrochemicals, shipping, logistics, automotive, electronics, construction—all sensitive to oil price and logistics cost increases
• Positive impacts: Heightened Middle East security concerns create unprecedented export opportunities for “K-Defense”. Interest in systems like Cheongung-II and KF-21 fighter jets surges, with expectations for large additional contracts.

South Korea’s Strategic Checklist for Crisis Response

In a rapidly changing international environment, government and businesses must pursue the following strategies to protect national interests.

Recommendations for Government Policymakers

1. Strengthen Energy Security: Diversify crude oil import sources to the U.S., South America, etc., and establish joint strategic petroleum reserve release plans.
2. Economic Stabilization Measures: Activate a “24-hour emergency economic response team” to monitor foreign exchange and financial markets and swiftly implement stabilization measures as needed.
3. Proactive Management of ‘Trump Risk’: Clearly communicate South Korea’s stance to ensure energy security and economic interests are not compromised during Trump administration negotiations.
4. Develop ‘K-Defense’ Strategic Industry: Recognize defense exports as a core national security and diplomatic asset and strengthen cross-government support.

Recommendations for Business Leaders

1. Supply Chain Stress Testing: Conduct worst-case scenario tests such as a Hormuz Strait blockade and secure alternative supply chains (Plan B).
2. Dynamic Financial Hedging Strategy: Develop phased financial hedging strategies to flexibly respond to oil price and exchange rate volatility based on scenario analysis.
3. Reassess Middle East Market Risks and Opportunities: Review local risks and explore entry strategies in new opportunity sectors like defense, IT, and renewable energy.
4. Ensure Supply Chain Visibility: Invest in digital technologies to gain full supply chain visibility and build capabilities for rapid response to logistics disruptions.

Conclusion

The 2025 Iran-Israel war will be a turning point beyond a regional conflict, reshaping the world order.

• Key Summary 1: Decades of “Shadow War” escalated into full-scale conflict, fundamentally reshaping Middle East geopolitics.
• Key Summary 2: The Trump administration will pursue a “Grand Bargain” by applying “Maximum Pressure” to bring Iran to the negotiating table and maximize U.S. interests.
• Key Summary 3: South Korea faces an energy security crisis but also unprecedented opportunities to expand “K-Defense” exports.

At this monumental turning point, government and businesses must maximize crisis management capabilities and respond flexibly and boldly to seize new strategic opportunities. Please feel free to contact us for more in-depth analysis.