25th February 2026
As the threats to Iran and the U.S. build up of naval task forces continues the question of the oil price looms large.
Brent crude and U.S. WTI prices are now at multi-month highs (Brent back above $71-$72) as traders price in geopolitical risk from potential U.S. military action against Iran.
This increases the "geopolitical risk premium" — the extra cost markets add purely because of conflict risk, not because supply has actually been cut yet. Analysts estimate this premium at several dollars per barrel.
Oil tanker freight costs (VLCC rates) are also surging — an indirect sign of rising shipping risk/insurance costs linked to Middle East instability.
What's driving prices up now isn't real supply loss — it's fear
Markets are reacting to the possibility of disruption, in particular around the Strait of Hormuz, a chokepoint through which about 20% of global oil exports transit:
Even a temporary or limited conflict could raise freight costs, insurance premiums, and risk of transit disruption — and traders price that in immediately.
Major oil market analysts say there’s no current physical shortage — if anything, the global market still shows signs of a surplus — but the risk of disruption is what’s lifting prices.
Oversupply concerns haven’t gone away
Despite the geopolitical premium:
• Major forecasters (including the U.S. Energy Information Administration and investment banks) have projected global supply outpacing demand in 2026, leading to stock builds.
• Historic oil inventories are elevated, and many analysts still see downward price pressure from excess barrels held in storage.
• Reuters data recently showed prices can settle up only modestly when oversupply fears offset geopolitics.
So in simple terms:
Geopolitical fear is pushing prices up right now, since markets hate uncertainty and any risk to Gulf flows.
Fundamental supply/demand is still soft or even surplus-biased, which limits how high prices can sustainably go unless supply is actually disrupted.
What could flip this into a bigger structural price rise
Oil prices would jump much more from here if one of these happens:
Actual disruption to export capacity — e.g., damage to Persian Gulf terminals or pipelines.
Supply chokepoint interference — e.g., closure or sustained attacks around the Strait of Hormuz.
Wider regional conflict drawing in other Gulf producers.
Analysts in worst-case scenarios (e.g., Strait closure) have suggested prices could spike toward $100-$150+ per barrel, though these are high-stress scenarios rather than base forecasts.
Offsetting factors that could temper prices
Global oil fundamentals still matter:
China slowdown or weaker global demand would cap prices even if Geopolitics remains tense.
OPEC+ production policy — if producers increase supply, that can counterbalance the risk premium.
Strategic reserve releases (e.g., U.S. SPR or China’s stockpiles) could cushion prices in a crisis.
Oil prices are rising right now, and the threat of U.S.-Iran conflict is a major driver of that increase through a geopolitical risk premium.
But the underlying global market still has oversupply and weak demand signals, which means the current gains are more about fear than real shortages.
For prices to keep rising strongly or sustainably above current levels, something would need to physically constrain supply — especially around the Strait of Hormuz — not just political rhetoric.