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Geopolitical Risk and Oil Prices
Four forecasts predict oil prices could reach as high as US$130 per barrel in a bleak scenario due to geopolitical tensions. Recent events escalated with the successful US strikes on Iranian nuclear sites, leading to a small gap lower in US equity index futures at the week’s start.
Key developments include US bombing actions, resulting in a minor opening in foreign exchange prices and the potential impact on oil markets. The Strait of Hormuz, a crucial oil transit chokepoint, remains open, despite concerns that its closure could cause significant disruptions. ANZ suggests such a disruption might push oil prices to US$95 per barrel.
Regarding the impact of Iran’s oil production, Citi estimates that a three million bpd disruption could increase prices to US$90. J.P. Morgan projects prices could rise to US$120–130 if Hormuz is closed. Meanwhile, Goldman Sachs identifies a US$10 geopolitical risk premium in current prices. Barclays suggests the reduction of Iranian exports by half could drive oil prices to US$85 or over US$100 in a potential regional conflict.
In market movements, Brent crude remains just below closing a market gap, sitting at a critical point on a triple-top breakout pattern.
This article lays out stark price outlooks for crude oil in the event of escalating tensions in the Middle East, particularly if disruptions intensify around Iranian production and the shipping routes it relies on. The recent military strikes by the United States on Iranian nuclear sites over the weekend have contributed to a cautious risk-off sentiment early in the trading week. It has been reflected in small downward price gaps across both equity futures and currencies, giving a first look at how sensitive current markets are to geopolitical risk.
We’ve seen that despite fears, the Strait of Hormuz remains open—though this detail alone is keeping a lid on the worst-case oil price estimates for now. The volume of oil moving through that strait is immense; an uninterrupted flow is holding back what would otherwise be a sharp rise in premiums for physical crude. According to ANZ, only partial disruption would nudge the barrel price to US$95. That figure would get baked into pricing models quickly, forcing option markets to reprice risk on the upside.
Market Projections And Implications
Citi’s outlook, projecting a US$90 oil price from a specific disruption of three million barrels per day, offers a more surgical estimate and hints that markets are actively modelling granular supply constraints region by region. In these cases, we’re likely to see wider spreads appear quickly between contracts that are physically delivered and those that are purely speculative. If supply halts outpace storage expansion, backwardation could steepen.
J.P. Morgan’s projection—up to US$130 per barrel in the event of a full shutdown of the Strait—is based on quite an extreme scenario, but one that still shapes pricing behaviour ahead of physical disruption. From their estimate, it’s clear that a chokepoint closure would have ripple effects well beyond spot prices. It would likely mean rapid realignment of calendar spreads and a surge in call options implied volatility.
Goldman indicates that around US$10 of the current oil price is purely due to geopolitical fear, rather than any confirmed shortage. That detail helps us keep perspective: risk isn’t evenly distributed across the curve, and short-dated contracts may be bearing an unjustified premium. If that premium collapses, those positioned long solely on sentiment could see quick reversals. For traders in derivatives, this tempers the incentive to chase the move unless new physical supply data confirms disruptions.
Barclays gives an estimate somewhere in-between, depending on Iranian export levels declining by half. If that’s the result of intensifying sanctions or a localised conflict, their suggestion of oil breaching US$100 lines up with historical relations between supply shortfalls and futures prices. It’s not simply about price levels—volatility expansion here would inject momentum into intraday moves, especially on thinner liquidity days.
Technically, the Brent chart stands at an inflection point. There’s a triple-top resistance pattern just shy of being broken. It’s something we, as traders, watch closely—not because it’s predictive in isolation, but because it often marks where trailing stops begin to cluster. If that pattern confirms and the price clears the upper bound, we may see fast follow-through buying, especially among short-term funds trading breakout systems.
In the coming sessions, with medial risk headlines ticking higher, calendar spreads and gamma exposure must be readjusted carefully. It’s not a moment to lean heavily on static assumptions or padded margin buffers. The nature of the updates—be they shipping halts or further strikes—will alter open interest distribution in options, particularly at round-number strikes like US$110 or US$130. These not only become targets—they inform delta hedging flows that could reinforce sharp directional movement.
For now, we should step back and reassess whether directional bets are worth the cost of carry, especially considering possibility skews being driven by event risk rather than fundamental over- or underproduction. Every additional strike or confirmed disruption shifts the probability tree traders calculate. Being early here matters less than being adaptive.
