Geopolitical tensions and Oil prices

Iran-U.S. conflict current impact

Brent crude has traded near multi-week highs around $63–$65 per barrel, while U.S. WTI has pushed above $60, reflecting rising premiums tied to Iran’s domestic unrest and the possibility of supply disruption. These rallies are occurring even as global oil demand growth remains modest and concerns about oversupply persist.

The current Iranian crisis is rooted in widespread anti-government protests that have intensified since late 2025. As authorities crack down, fears have mounted that Iran one of OPEC’s largest producers could see significant export losses if internal instability worsens. Markets are pricing in a geopolitical risk premium that some analysts estimate could add roughly $3–$4 per barrel to oil prices when fears of export disruption are most acute.

Another dimension to this risk is Iran’s strategic position on oil route infrastructure. The Strait of Hormuz, through which nearly 20% of global seaborne oil passes, remains a key vulnerability point; any escalation that threatens transit there could propel prices sharply higher, potentially above $80–$90 per barrel in a serious disruption scenario.

If the unrest in Iran deepens and leads to either tighter sanctions or operational disruptions, oil prices could sustain elevated levels or spike. However, a widespread supply shock has not yet materialized, and markets will likely continue requiring hard evidence of lost barrels before moving dramatically higher. For now, Iranian risk acts as a price hinge capable of fueling rallies when tensions spike.

Venezuela oil supply

Venezuelan oil has historically been a wild card for global supply, but developments in early 2026 suggest a complex mix of promise and constraint. Following the ouster of Nicolás Maduro and new U.S. oversight of PDVSA’s exports, Venezuela has begun reversing the steep production declines that accompanied export embargoes. Supertankers carrying approximately 1.8 million barrels each have recently departed Venezuelan ports, signaling the potential revival of exports.

Despite these hopeful signs, Venezuela’s ability to meaningfully boost output remains constrained by longstanding infrastructure degradation, underinvestment, and technical issues that have kept output well below its reserve-heavy potential. The International Energy Agency (IEA) cautions that lifting significant volumes will require time, capital, and major repairs factors that temper short-term optimism.

The renewed Venezuelan supply has already affected pricing dynamics: the WTI discount to Brent widened to over $4.70 per barrel, the largest divergence in months, as Venezuelan barrels flow into the U.S. market and increase regional availability. This makes U.S. crude more abundant relative to international benchmarks, capping how high prices can climb even with geopolitical risk.

OPEC and global supply management

While geopolitical headlines dominate short-term pricing, OPEC+ production policies and global supply balances remain a critical backdrop for oil markets in 2026. After a sharp decline in oil prices through 2025 due to oversupply and weak demand growth, major producers have adopted a more cautious approach to production increases. Some OPEC+ members had previously paused planned output hikes for early 2026, even as overall production remained elevated.

U.S. production share has increased sharply, climbing from near 10% in the early 2000s to almost 18% by 2025, largely driven by shale development. Non-OPEC producers outside the U.S. have remained relatively stable, while “other countries” have gradually lost share. This shift explains why OPEC’s pricing power, while still significant in the short term, is more constrained than in previous decades.

Looking ahead, the chart suggests that OPEC’s ability to sustain higher oil prices increasingly depends on coordinated production discipline rather than market dominance. With U.S. and non-OPEC supply accounting for a growing portion of global output, any attempt by OPEC to aggressively restrict supply risks ceding market share without guaranteeing lasting price gains. As a result, OPEC’s current strategy appears focused on managing volatility rather than engineering sustained price spikes. In the near term, geopolitical risks such as tensions involving Iran can still generate sharp rallies, but structurally rising non-OPEC supply limits the upside unless disruptions translate into meaningful, prolonged production losses. This dynamic reinforces expectations that oil prices in 2026 are more likely to trade in a volatile but capped range, rather than entering a prolonged Supercycle driven solely by OPEC policy.

Source: MacroMicro