- Conflict reveals supply impacts now ‘taboo’
- Risk premiums vanish after Iranian response
- Market fundamentals outweigh short-term uncertainty
The hesitation of Iran and Israel to disrupt crude supplies in their recent 12-day conflict – and the price declines that immediately followed Iran’s muted response to the US’s bombing of its nuclear facilities — could hint at a new era of broadly reduced geopolitical risks for energy, experts and analysts said.
“Many (traders) are concluding that there will be changes in the way the market moves to price geopolitical risk in the future,” Daniel Sternoff, Head of Energy Aspects Executive Briefing Service, said during an Institute of Global Politics and the Center on Global Energy Policy at Columbia event on June 26.
In recent decades, many analysts’ greatest fear was unilateral strikes on Iran’s nuclear program and a potential closing of the Strait of Hormuz, Sternoff said.
“But if you spent the last two weeks in a fortified bunker, you would think absolutely nothing happened,” he said. “That we could come through a crisis of this magnitude and not see any kind of an actual disruption, we learned there’s now really a taboo around impacting oil supply to the global market.”
Risk premiums ‘evaporate’
Dated Brent, which entered June at $63.83/b, rose sharply after Israel launched a major attack on Iranian nuclear and military facilities on June 15 — spiking at $80.43/b on June 19, two days before the US struck three Iranian nuclear development sites.
Crude futures were seen as bullish before and in the immediate wake of the attacks, as the prospect of an Iranian response triggered concerns that the roughly 20 million b/d of crude shipments that traverse the Strait of Hormuz could be blockaded.
When Iran instead responded with a limited, symbolic missile attack on regional US airbases on June 23, crude swiftly slumped, with NYMEX August WTI settling $5.33 lower at $68.51/b and ICE August Brent dropping $5.53 to $71.48/b.
“What we saw in the last two weeks was the mother of all geopolitical risks that the oil market would have been concerned about,” Jason Bordoff, Founding Director of the Center on Global Energy Policy, said on June 26. “And it is striking that, yes, oil prices surged … but not into the triple digits, not to $120 or $150 per barrel.”
According to a June 27 Goldman Sachs report, the firm’s estimated geopolitical risk premium in Brent spot prices had fallen to $1/b from a $15/b peak.
“Basically, all of the risk premium completely evaporated,” Sternoff said.
Market fundamentals
US President Donald Trump’s June 23 announcement of a ceasefire pushed the wider market back toward long-term fundamentals, analysts said – namely modest demand growth, building inventories, and paired with higher OPEC+ supply.
A June 26 S&P Global Commodity Insights Global Crude Oil Markets Short-Term Outlook said that while “the war and now uneasy ceasefire” had introduced uncertainties to the market, “our core view remains intact: We expect global crude oil supply to exceed oil demand in the second half of 2025 by 1.2 million b/d.”
The realities of that modern, interconnected crude market likely pushed Iran, which exports 1.5 million b/d, to eschew further escalation. A blockade would have caused disproportionate self-inflicted consequences on Iran itself, experts argued.
“It’s cutting off your nose to spite your face,” Sternoff said. “It would hurt one of its few friends and its largest customer, China, and it would hurt its own energy exports.”
China was the destination for 89% of Iran’s crude exports in 2023, according to the US Energy Information Administration, while roughly half of all Chinese seaborne crude imports flowed through the Strait of Hormuz in 2024, according to S&P Global Commodity Insights shipping data.
“In the 1970s, you could impose an embargo — oil was traded in long-term contracts between buyer and seller,” Bordoff said. “You didn’t have the deeply interconnected, integrated global oil market that we do today, where if you try to weaponize oil, you’re imposing pain on yourself, your employees, your allies, as well as maybe on your adversaries.”
The same logic prevented Israel from focusing strikes on Iranian oil export platforms, Sternoff argued.
“That would have great advantages from an Israeli perspective – but it would also have the whole world blaming it for triple-digit oil prices,” he said.
Not over yet
Still, risks abound. While the ceasefire has held in recent days, any violations could spark a new chapter in the conflict. Iran could decide to continue, or even accelerate, its nuclear weapons program in secret, which could in turn lead to proliferation among other regional powers, including Saudi Arabia and Turkey, Jon Finer, a Distinguished Fellow at the Columbia Center on Global Energy Policy and a former US Principal Deputy National Security Advisor, said.
Meanwhile, an unexpected change in internal Iranian politics could dramatically alter the country’s foreign policy calculus and reset the stakes for potential US intervention.
“Does something happen to the Iranian regime that would be a game changer?” Finer said. “A coup of some kind, a collapse of some kind, a popular uprising? I don’t suspect the US and our intelligence committee would predict that. We don’t tend to be very good at foreseeing these things.”
Meanwhile, the US’ “maximum pressure” sanctions on Iranian crude – which senior administration officials clarified June 25 had not changed – could be removed or enforced more strictly, depending on the outcome of US-Iran talks.
Asked on June 27 at a White House event whether he would demand that Iran not only cease all uranium production but turn over its existing stockpiles, Trump said “it’s a little early for that, but something like that.” When a reporter asked whether he would bomb the country again if intelligence reports revealed that Iran could still enrich enough material to build a nuclear weapon, Trump responded “sure.”
If talks fail, Iran could “hunker down and try to reconstitute its program,” which might spur Israel to consider future attacks on Iran’s energy exports.
Still, “the toxicity of interfering with those flows is going to be internalized by oil markets, and it might dampen future assessments of geopolitical risk,” Sternoff said. “What we really need to see are actual disruptions to physical supply to have really meaningful pricing consequences.”
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Source: S&P Global
