Oil prices significantly boosted their gains during today's trading, driven by a sharp increase in the geopolitical risk premium, as ongoing turmoil in Iran cast a shadow over the markets, coinciding with the continuation of Russian military operations in Ukraine.
In trading details, energy markets saw a clear recovery, with Brent crude futures for March delivery rising by about 1.3%, gaining 84 cents to settle at $64.72 a barrel. Similarly, West Texas Intermediate (WTI) crude futures for February delivery rose by 1.45%, adding 86 cents to reach $60.35 a barrel.
Escalating US pressure and the Iranian issue
These price increases come at a time of significant diplomatic and economic escalation on the international stage, with US President Donald Trump announcing a 25% tariff on goods imported from any country that maintains trade relations with Iran. This decision aims to tighten the economic noose around Tehran amidst widespread internal unrest in the country, raising concerns among investors about the stability of oil supplies from the Arabian Gulf region, a vital artery for global energy.
Risk premium and analyst opinion
In analyzing the situation, Barclays Bank, in a recent research note, pointed to the direct impact of these events on pricing, explaining: “The unrest in Iran has added between $3 and $4 per barrel to the geopolitical risk premium in oil prices.” This assessment reflects market concerns about potential disruptions to supply chains or the impact on shipping in vital waterways.
The geopolitical context and its impact on markets
The current situation cannot be separated from the broader geopolitical context. In addition to the Iranian issue, Russia's attacks on Ukraine continue to put pressure on energy markets. Russia is one of the world's largest oil and gas producers (a key member of the OPEC+ alliance), and any threat to its infrastructure or tightening of sanctions against it immediately impacts the global supply and demand equation.
Experts believe that prices approaching the $65 mark brings to mind the global economy's sensitivity to energy price fluctuations, as such increases typically lead to higher production and transportation costs worldwide, potentially fueling inflation rates that central banks are trying to curb. Attention remains focused on developments in both the Middle East and Eastern Europe, which will be the primary drivers of price trends in the coming period.
