The use of energy as a geopolitical weapon is not new. Sanctions imposed by the US and its allies on countries such as Cuba, Venezuela, Iraq, Russia and Iran have long contributed to oil market volatility. These measures reduce the pool of freely marketable oil and increase uncertainty.<\/p>\n
More recently, European<\/a>, UK<\/a> and US<\/a> sanctions on Russia also reshaped trade flows and pricing dynamics. And the G7 has imposed its own price caps<\/a> on Russian crude.<\/p>\n When it comes to the Gulf, there are alternative export routes out to open sea but their capacity is limited. Saudi Arabia\u2019s east-west pipeline can transport around five million barrels<\/a> of oil per day to the Red Sea. And the UAE\u2019s pipeline to the city of Fujairah can move around 1.5 million barrels<\/a> per day, bypassing the strait. Throughout the hostilities, Iran continued to export an estimated 1.5 million barrels<\/a> of oil per day. <\/p>\n But even accounting for these alternatives, any disruption in the strait implies a loss of roughly 10% of the world\u2019s oil supply. In comparison, the oil shocks of the 1970s represented around 5-7%<\/a> of the world\u2019s supply.<\/p>\n The effects of this supply crunch propagated rapidly through global markets. They initially hit Asian buyers<\/a> before spreading to Europe and beyond. Price premiums for physical crude have surged, and prices for the three main benchmark crudes<\/a> (Brent, Dubai and West Texas Intermediate (WTI)) have all risen sharply.<\/p>\n Crude oil and heating oil prices from December 2025 to April 2026.<\/p>\n Spikes and falls: oil prices are well known for volatility. Source: Chicago Mercantile Exchange data. At the same time, volatility in the market has also increased dramatically. Implied volatility in Brent futures has climbed from below 30% in December to around 90% more recently. Put simply, this means the price of oil was expected to change by no more than 30% in December last year, but this expectation rose to 90% recently. <\/p>\n In part, it reflects a fundamental imbalance between scarce physical supply and a largely unchanged volume of financial (\u201cpaper\u201d) trading and hedging activity. <\/p>\n In the spot market (where purchases are made \u201con the spot\u201d), prices have reflected the acute scarcity. Here, prices for physical Brent reached US$140 (\u00a3106) per barrel. Some grades have been trading at premiums exceeding US$10 above this. <\/p>\n Saudi Arabia\u2019s official selling price for its flagship \u201cArab Light\u201d crude has risen steeply for Asian buyers. This underscores the tightness in markets for immediate delivery and the extent of short-term pressure on demand.<\/p>\n But futures markets tell a different story. As the name suggests, these are where buyers agree a price for later delivery. These prices are significantly lower. This suggests that traders still expected the disruption to be temporary, with the possibility of a relatively rapid price correction should geopolitical conditions stabilise.<\/p>\n These expectations are not without foundation. While some refining infrastructure<\/a> (such as Ras Tanura and Samref in Saudi Arabia, Ruwais in the UAE, Mina Al-Ahmadi and Mina Abdullah in Kuwait and Bapco in Bahrain among others) have been damaged, much of the core oil production capacity in the region remains intact. In theory, exports could resume within days or weeks. <\/p>\n In addition, a large number of tankers known as very large crude carriers (VLCCs) have been stranded in the Gulf. This deescalation should quickly release significant volumes of oil back on to the market.<\/p>\n Optimism or caution?<\/p>\n This gap between short-term panic and longer-term expectations is a key feature of the current market. It reflects the wide range of possible geopolitical outcomes.<\/p>\n But there are reasons to be cautious about such optimism. Control of the strait of Hormuz is one of Iran\u2019s most powerful strategic tools. Further disruption may serve both Iran\u2019s economic and political objectives, particularly after it has suffered such significant infrastructure damage.<\/p>\n The cessation of hostilities and reopening of the strait should ease immediate supply concerns. But it could also signal a deeper shift in the global security architecture that has underpinned energy markets for decades. In particular, a reduced role for the US as a security guarantor in key shipping lanes could introduce a more persistent risk premium into oil prices. This would raise consumer costs across the world for a huge variety of goods.<\/p>\n In such a world, the primary constraint on energy markets may shift from the availability of resources to the security of production and transport infrastructure. This could potentially embed higher volatility into oil markets over the longer term.<\/p>\n![\"\"](\"https:\/\/www.newsbeep.com\/il\/wp-content\/uploads\/2026\/04\/file-20260407-57-62a96s.jpg\")
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