Energy prices defy expectations as global supply adapts to geopolitical shocks
The limited impact of the Israel-Iran war on oil prices is underscoring a shift in the dynamics of global energy markets. Despite the high geopolitical stakes, Brent crude’s rise was short-lived and relatively modest, climbing from under $70 on June 12 to just over $81 before falling back below pre-conflict levels once a ceasefire was announced.
This 15% low-to-high swing stands in stark contrast to the oil price surges of past Middle East conflicts. From the 1973 Arab oil embargo to Iraq’s 1990 invasion of Kuwait, geopolitical instability in the region once triggered sharp, often panic-driven price spikes. Today, markets are reacting with far more composure.
Markets More Rational, Risk Premium Shrinks
Oil traders now rely on real-time data and sophisticated monitoring tools, such as satellite tracking and aerial imaging of ports and fields. This access has made markets more informed and less prone to overreaction. The current response appears to reflect a calculated assessment of Iran’s limited capacity or willingness to block oil transit through the Strait of Hormuz.
With nearly 20% of global oil flowing through the strait, a full-scale disruption could have triggered a crisis. Instead, shipping continued largely uninterrupted throughout the conflict, and Iran’s retaliation against U.S. strikes appeared symbolic rather than escalatory.
Export Infrastructure Adds Stability
Energy producers in the Gulf have spent years preparing for potential blockages. Saudi Arabia’s 5 million bpd pipeline to the Red Sea, along with the UAE’s Fujairah route that bypasses Hormuz, offers redundancy that shields global supply from single-point failures. Additional oil storage hubs in Asia and Europe give producers the flexibility to maintain exports even during brief shipping interruptions.
Middle East No Longer Central to Global Oil
Fundamentally, the global oil market is no longer as reliant on the Middle East. The rise of shale in the U.S., along with expanded production in Brazil, Canada, Guyana, and China, has diluted OPEC’s influence. The bloc’s share of global supply has fallen from over 50% in the 1970s to just 33% in 2023, according to the International Energy Agency.
With the world better supplied and better prepared, geopolitical tensions in the Middle East are losing their grip on oil prices. Even as conflicts continue to unfold, the once-automatic link between war and energy inflation appears to be fading — a sign of just how much the market has matured.
