Oil Jumps Above $70 On Geopolitical Risks

Brent crude is back above the $70 per barrel mark, touching six-and-a-half-month highs and surprising traders who were bracing for softer prices. The move has been swift, and according to market watchers, it has little to do with demand. Instead, geopolitics is back in the driver’s seat.

Peter McGuire, CEO of Australia-based Trading.com, said the rebound has caught many off guard, especially those positioned for a supply-driven pullback.

“Absolutely, it has hit everyone by surprise,” he said, pointing to rising tensions involving Iran, the United States, and the ongoing Russia-Ukraine conflict.

Why Is Brent Crude Climbing Despite Oversupply Fears?

Only weeks ago, the dominant narrative in oil markets was oversupply. Higher output from producers and concerns about weaker global demand had created expectations that crude could drift lower. That view has now taken a back seat.

McGuire said markets are now focused more on disruption risks. “You cannot discount the geopolitical premium being built into the price,” he explained.

In simple terms, traders are adding a “war premium” to oil. If tensions escalate, prices can quickly jump by $5 to $10 per barrel. McGuire believes Brent could even move toward $75 if frictions intensify.

However, the supply backdrop does not fully support these higher levels. There is still ample crude in the system. If geopolitical tensions cool, the premium could evaporate just as quickly.

“In a perfect world where geopolitical risk dissipates, Brent could move back to the low $60s or even high $50s,” McGuire said. US crude, or WTI, could slip into the mid-$50s.

Is The Strait Of Hormuz The Biggest Risk To Oil Markets?

The biggest flashpoint right now is the Strait of Hormuz. This narrow waterway carries more than 30% of the world’s crude shipments. Any threat to traffic there would have immediate global consequences.

McGuire warned that even strong rhetoric around the Strait can move prices. If Iran were to restrict or threaten shipping, Asia would feel the impact first, especially China, which depends heavily on Middle Eastern oil.

China could also play a stabilising role. As a major buyer of regional crude, Beijing has an interest in keeping energy flows uninterrupted. Still, the situation remains uncertain. Some analysts believe the probability of military action could be 50% or higher by April.

For now, markets are reacting to headlines. Even the suggestion of disruption is enough to send traders scrambling.

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Could Tensions Spill Over Into Other Markets?

Oil may be at the centre of attention, but a flare-up would likely ripple across other asset classes.

McGuire expects a classic flight to safety if tensions escalate. Gold prices and silver prices could climb as investors seek protection. The US dollar may also strengthen, potentially pushing back toward the 99 level on the dollar index.

The Russia-Ukraine conflict adds another layer of risk. While it has stabilised in some respects, it remains unresolved and continues to support oil prices in the background.

For the Indian investor, this may be more important than what meets the eye. India’s import bill for crude oil is over 80%, and a rise in oil prices may impact the rupee, the current account deficit, and inflation. This may, in turn, impact RBI policy and equity markets, particularly for oil and aviation companies and paints.

Sources

Economic Times

CNBC TV18

Economic Times

ICRIER