“Absolutely, it took everyone by surprise,” McGuire said. “But we cannot ignore the geopolitical premium built into the price. Russia-Ukraine tensions and ongoing friction between Iran and the US are adding heat to the market.”
Strait of Hormuz: the main flashpoint
The biggest risk hanging over crude markets is the possibility of disruption to the Strait of Hormuz – a crucial artery through which almost a third of the world’s oil flows.
According to McGuire, any move by Iran to restrict or threaten shipping through the Strait would have immediate and serious consequences.
“If Iran were to severely shrink or close the Strait of Hormuz, Asia would be the biggest victim – especially China,” he said. “That would create enormous pressure, not just regionally, but across the entire global consumption chain.”
China, which is heavily dependent on crude oil from the Middle East, could play a stabilizing role. McGuire expects Beijing will apply pressure to prevent any extreme escalation that could disrupt energy flows. However, the situation remains fluid. “This is craftsmanship. Whether it becomes a reality is still a work in progress,” he added.
War premium versus supply surplus
Before this geopolitical flare-up, oil markets were focused on oversupply concerns, including higher production from producers and weaker global demand forecasts. That bearish story has now taken a back seat.
McGuire says the balance is currently leaning towards fear of supply disruption.“If geopolitics escalates, you can quickly add $5 to $10 a barrel as a war bounty,” he noted. “Markets will react quickly to any sign of military action or disruption to shipping.”
However, if tensions ease and the war bounty disappears, crude oil could retreat sharply.
“In a perfect world where geopolitical risk disappears, Brent could move back to the low $60s or even the high $50s. WTI could trade in the mid-$50s,” he said.
Russia-Ukraine adds to the heat
Apart from Iran, the ongoing conflict between Russia and Ukraine remains a supportive factor for oil prices. Although the conflict has stabilized in some respects, any new escalation could push prices up again.
“As long as the situation between Russia and Ukraine remains unresolved, there is a background layer of risk premia embedded in oil,” McGuire explains.
What awaits us?
Oil’s next move depends on how geopolitical risks develop in the coming weeks. The markets will closely monitor developments around Tehran, Washington and Beijing.
For now, the rough complex remains very sensitive to the headlines.
“Things could escalate very quickly in the oil markets,” McGuire warned. “No one has a crystal ball unless you are a member of the government in Washington or Tehran.”
With fears of supply disruption overshadowing earlier concerns about oversupply, oil price volatility is likely to remain high, keeping energy markets tense.
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