Market reacts to geopolitical risk
Oil prices climbed Friday as renewed threats by U.S. President Donald Trump toward Iran heightened fears of potential supply disruptions. While Iran is not among the world’s largest oil producers, escalating political and military tensions have injected fresh volatility into global energy markets.
Iran currently produces around 3.4 million barrels per day, according to data from Kpler. By comparison, the United States pumps roughly 13.5 million barrels per day, while Saudi Arabia produces about 9.5 million barrels per day, based on figures from the U.S. Energy Information Administration and OPEC.
Protests and rhetoric fuel uncertainty
Despite Iran’s relatively smaller production footprint, recent protests triggered by the collapse of the Iranian rial have unsettled investors. Trump’s comments suggesting possible U.S. military action have added to the unease.
“Oil markets are moving on fear,” said Helima Croft, global head of commodity strategy at RBC Capital Markets. “It’s basically a concern about disruption.”
Trump told reporters Thursday that U.S. naval assets were moving toward the region “just in case,” further amplifying market anxiety. Human Rights Activists News Agency reports that more than 5,000 people have died in Iran since protests began in late December.
Limited spare capacity raises stakes
While the oil market remains adequately supplied in the near term, analysts warn that spare capacity is thinner than in previous years. OPEC and its allies, which account for roughly 40% of global oil production, increased output last year, reducing their ability to offset major supply shocks.
“If we were to get a confrontation between the U.S. and Iran that led to the loss of Iranian oil exports, there just isn’t a lot left in the OPEC tank to cover that,” Croft said.
Regional risks extend beyond Iran
Concerns are not limited to Iranian output alone. Iran’s geographic position places it near key oil producers and vital shipping routes, including the Strait of Hormuz. Approximately 20% of global crude oil flows through the narrow waterway.
Iran and Iranian-backed groups have previously targeted oil tankers and infrastructure in the region. In 2019, a series of attacks on tankers in the Strait of Hormuz underscored the vulnerability of global supply chains.
Sanctions and tariffs add complexity
Trump has confirmed that 25% tariffs on countries doing business with Iran will proceed, despite softening some military rhetoric. Existing sanctions have already constrained Iranian exports, with most shipments going to independent Chinese refiners at discounted prices.
Analysts question how much additional pressure sanctions can exert. “Can you really squeeze Iran much more given where their barrels are going?” Croft asked, suggesting that sanctions may have diminishing leverage over Iranian policy.
For now, energy markets remain highly sensitive to developments in the region, with prices reacting less to immediate supply fundamentals and more to the risk of escalation.