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Geopolitics Is Back in the Driver's Seat

The oil market has re-entered a phase heavily influenced by geopolitical factors. Tensions between the United States and Iran mean that Brent crude is now reflecting a geopolitical risk premium, with global investors accounting for potential supply disruptions from one of the Middle East's largest oil producers.

Iran currently produces approximately 3.5 million barrels per day (mbpd), or around 3% of total global oil supply. Most of its exports — approximately 80–90% — are shipped to China. As a result, any disruption to Iranian exports would not only affect global supply, but could also potentially reshape global oil trade patterns.

Why Iran Matters to the Oil Market
If Iranian exports are disrupted, China would likely need to redirect its oil supply sources to other markets.

This would increase demand for seaborne crude supply, which could ultimately drive up global oil prices.

Several risk scenarios being monitored by the market include:
1. Disruption at Kharg Island
Kharg Island is Iran's main oil export terminal. An attack or disruption to this facility could significantly hinder the flow of oil exports.
2. Domestic Instability
Political instability or domestic unrest could also disrupt oil production and distribution.

However, extreme scenarios such as closure of the Strait of Hormuz are still viewed as a very low-probability risk.

Beyond its broad impact on global trade, such a move could also trigger significant regional responses.

Structural Drivers Are Also Emerging
Beyond geopolitical factors, several structural factors are beginning to support the oil price outlook.

China Demand Acceleration
China is beginning to ramp up inventory building activity, which could accelerate a recovery in oil demand.

US Shale Growth Slowing Earlier
US shale oil production growth is showing signs of slowing earlier than previously expected.

Large US Stockpile Drawdowns
Large declines in US oil reserves are also adding pressure to the global supply side.

The combination of these factors is creating momentum for the oil and gas sector earlier than previously anticipated.

Whereas the sector entry opportunity was previously estimated at 2Q–3Q 2026, this window now has the potential to advance to 1H 2026.

What It Means for the Oil & Gas Sector
With rising geopolitical risk premiums and supporting fundamental factors, the oil and gas sector is now back in focus.

However, volatility remains the dominant characteristic of the current oil market.

In the near term:
- An escalation in Iran tensions could trigger a spike in oil prices
- Conversely, if geopolitical risks ease and no physical disruption to Iranian exports occurs, oil prices could still fall by around US$5 per barrel

Therefore, the investment approach in this sector needs to remain tactical and disciplined in response to shifts in global risk dynamics.

The oil market is currently at the intersection of geopolitics and global energy fundamentals.

Even relatively small supply disruptions can have significant price impacts, especially when markets are already sensitive to geopolitical risks.

With rising global tensions and shifting energy supply dynamics, the oil and gas sector is likely to remain one of the most responsive sectors to global developments in the coming period.