Energy and civilian infrastructure have become targets, signaling the US-Iran conflict has entered a new and dangerous phase.
On Friday, Kuwait stated that Iran had expanded its attacks to include a power and desalination plant. Iraqi officials said on Thursday that the largest gas field in the northern Kurdish region was shut down due to credible attack threats, while US airstrikes extended to the port of Chabahar, located over 350 miles from the Strait of Hormuz. Neither side shows signs of backing down.
Traffic through the Strait of Hormuz has fallen to a three-week low, while international crude oil futures posted double-digit gains for the week. By Friday's close, front-month Brent and WTI contracts had surged approximately 15.9% and 15.5% for the week, respectively, both closing at one-month highs for the fourth consecutive session.
The oil price movement indicates the market is rapidly pricing in fears of further conflict spillover. This escalation is no longer confined to bilateral military confrontation but has begun impacting the civilian livelihood and energy arteries of neighboring countries. Saeid Golkar, an Iran security expert at the University of Tennessee at Chattanooga, warned that the escalation is rapidly spiraling out of control, stating that "even if neither side wants an all-out war, we still face the risk of returning to a full-scale conflict."
Civilian Infrastructure Enters the Crosshairs for the First Time
Observers note the most significant change in this round of escalation is the crossing of a previously tacit "civilian red line."
Kuwait's government stated on Friday that an Iranian drone attack damaged a power and desalination plant. Coming during a summer heatwave, the attack forced Kuwait to activate emergency contingency plans and was seen as highly provocative. The Kuwaiti military reported intercepting 32 drone incursions since early Thursday.
Meanwhile, Iraqi officials revealed that drones targeted an oil tanker and a container ship at a southern port, as well as the northern Kurdish region, on Thursday. The region's largest gas field subsequently announced its closure citing "a credible threat of attack." The Kurdistan Regional Government in Iraq reported that more drones were intercepted over the regional capital, Erbil, on Friday. No group has claimed responsibility for the attacks within Iraq, but Iran and its local allies have frequently launched drone attacks in the region previously.
Iran has also begun targeting Qatar and Oman—two countries actively engaged in diplomatic mediation—and has continued to intensify attacks on passing vessels.
US Strikes Extend Inland, Targeting Chabahar Port
The US military has similarly expanded its operational boundaries, extending strikes from the Strait coastline deep into Iran's interior.
US Defense Secretary publicly released photos showing a collapsed maritime communications tower at Chabahar port. Located over 350 miles east of the Strait of Hormuz near the Pakistani border, it is Iran's only deep-water ocean port. Iranian authorities confirmed the facility was attacked, insisting it served civilian purposes, including search and rescue operations for fishing vessels. Chris Long, a former British naval officer who served in the Persian Gulf, noted the tower could also serve observation and intelligence-gathering functions.
At Bandar Abbas on the opposite side of the Strait of Hormuz, US forces conducted strikes on multiple bridges over several nights, aiming to sever supply routes to this strategic port and naval base. Iran's state broadcaster IRIB reported attacks on several bridges in and around Bandar Abbas, with roads connecting the port city to neighboring provinces declared closed.
According to reports citing US officials, Iran has used facilities at this port to launch attacks on vessels. Bandar Abbas normally handles 90% of Iran's container traffic.
The US military has reportedly conducted airstrikes for six consecutive days, marking the largest escalation since the initial agreement in June. Beyond bridges, targets have included weapons and surveillance systems Iran uses to attack commercial ships, encompassing small fast-attack craft, coastal radar stations, air defense systems, and missile and drone storage facilities.
Strait Traffic Disrupted, Oil Risk Premium Repriced
The deepening military conflict is directly impacting global energy markets.
According to data from ship-tracking firm Kpler, traffic through the Strait of Hormuz has dropped to a three-week low. Currently, half of the transiting vessels are Iranian, with most traffic passing through Iranian-side lanes. Additionally, the UK Maritime Trade Operations reported another vessel was attacked by an unidentified projectile near the Strait of Hormuz on Friday.
International oil prices have gained over 10% for the week. The former US President had previously expressed concern that rising oil prices would impact the global economy.
The origins of this conflict can be traced to a memorandum of understanding signed between the former US administration and Iran a month ago. The agreement originally aimed to open Strait of Hormuz transit, but collapsed last week after Iran launched a new wave of attacks against US operations escorting vessels along the Omani coast. Iran insists the agreement granted it the right to manage Strait transit traffic, requiring vessels to use the northern lane along the Iranian coast.
Both Sides Have Incentives for Restraint, but Spiral Escalation Risk Rises
Despite the deteriorating situation, both sides have practical reasons to avoid all-out war.
Iran faces immense post-war reconstruction pressures, and domestic public dissatisfaction with the government is intensifying. The former US administration faced political pressure from the economic impact of surging oil prices.
US officials indicated earlier this week that the former President favored expanding military action to break the diplomatic deadlock. According to flight-tracking data and a source familiar with the matter, the US is redeploying jet fighters from Europe to the Middle East. Furthermore, over 2,000 Marines from the 11th Marine Expeditionary Unit have been operating in the region. Military-released photos show them conducting a boarding inspection of a merchant ship in the Gulf of Oman to enforce the blockade on Iranian ports.
In a prime-time television address on Thursday evening, the former US President stated, "We are also winning big in Iran, and you will see the results of these efforts very soon."
However, Saeid Golkar offers a more cautious assessment. He points out that Tehran's consistent strategy is to suppress its opponent with higher-intensity escalation and wear down the US through a protracted conflict. With both sides vying for leverage and unwilling to back down first, the risk of an uncontrolled escalation spiral has become a core risk the market cannot ignore.
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