Oil Price Reality: Are We Destined for New Highs, or Just Another False Alarm?

Oil has been thrust back into the spotlight as the negative catalyst for markets. The events over the weekend highlight just how fragile the Middle East is and how it will shape global trading in the second half of 2025.

Putting Iran in an oil-specific perspective, despite rising geopolitical tensions, the potential for sustained disruptions to energy supply appears limited for now. This is backed by historical data seen in April, June, and October last year, where heightened risk didn’t translate into prolonged price surges.

There are absolutely geopolitical concerns around Iranian retaliation, coupled with Israeli retaliation, and so on. But the likelihood of strikes on regional energy infrastructure appears low.

Iran’s relationships with Gulf nations have improved markedly, reducing the risk of hostile action toward their oil operations. This has been led by Saudi Arabia, which will be strong in ensuring no disruption to global oil supplies. 

The caveat is if Iran decides to go at it alone and block the Strait of Hormuz, which would severely impact the likes of Bahrain, Qatar, the UAE, Kuwait, and Iraq. This appears unlikely, but a risk we need to be aware of.

Where does diplomacy sit?

Expectations are for tensions to spike in the short term. However, that will likely lead to renewed diplomatic engagement, particularly if the alternatives prove economically or strategically untenable (i.e., long-term war, regime changes, civil unrest). 

That’s the long term; the near-term resolution is the concern. The United States and the greater regions of Europe and Asia will be brought in. We know that the President has a very high preference for low oil prices as a major part of his election campaign. With no signs, demand is likely to collapse. The only way to keep prices down on this escalation is to ramp up supply. 

The catch is that US producers remain very reluctant to ramp up supply at current prices. OPEC and Saudi Arabia have already moved to increase production to stamp out non-OPEC members on price, and Russia is still a global pariah with its war with Ukraine. So the supply lever is going to be tricky.

So, what about pricing?

Energy price volatility is being closely tied to positioning in the futures market. Historical patterns show a strong correlation between net longs and Brent pricing.

If we speculate that short positions were to be fully unwound (from 187k lots to zero), the implied move could be around $14 per barrel. Brent recently hit $65 per barrel before the conflict and spiked to an intraday high of $78.5 per barrel on the news breaking. 

This reflects the type of technical squeezes we can expect. Sustained gains would then require fresh long positioning.

Summary

The market remains focused on how Iran and Israel might respond further, and whether any escalation might target energy infrastructure directly. Meanwhile, the U.S. continues to signal interest in keeping diplomatic channels open. 

Unless Iran decides to go against all expectations and independently block the Strait of Hormuz, we can expect heightened volatility in the short term, without any prolonged surge — similar to the patterns we saw during heightened tensions throughout last year.