5 Trends Shaping the Oil Market Amid Iran Tensions

SadaNews - Any American military strike on Iran is likely to shake the global oil markets, as the Iranian response could exacerbate the risk of oil tanker movements being halted in the Strait of Hormuz, the maritime passage through which 25% of the world's crude oil and liquefied natural gas flows.

In this scenario, the risk premium on crude oil will widen, but OPEC+’s readiness to increase production and any resumption of oil exports from Venezuela could limit any spike in prices.

In this report, Bloomberg Intelligence reviews five key trends in the oil market during the current quarter.

Closure of the Strait of Hormuz Raises Oil Prices

A wave of protests is sweeping through Iran, closely monitored by world leaders, including U.S. President Trump, who is said to be considering options for a potential military strike, just as the repercussions of his actions in Venezuela were starting to subside.

These escalating threats and the possibility of U.S. intervention increase the risk of disruptions to oil shipments through the Strait of Hormuz, a transit point for approximately 20 million barrels a day, equivalent to 20% of global oil consumption and its derivatives.

Despite the existence of two alternative pipelines to the Strait of Hormuz—an East-West pipeline in Saudi Arabia with a capacity of 5 million barrels per day, and a pipeline from the UAE to the port of Fujairah on the Gulf of Oman with a capacity of 1.8 million barrels per day—the actual available capacity from these two lines does not exceed 2 to 3 million barrels per day as of last July, meaning that any disruption in supplies through the strait is likely to sharply raise oil prices.

Oil Priced Below Its Fair Value Due to Supply Pressure

West Texas Intermediate crude was trading on January 9 at a discount of $6.55 per barrel compared to $10.24 during the week of October 12, highlighting the growing sense of anxiety in the energy market regarding the oversupply, despite the increasing tensions in the Middle East and the potential threats to the Strait of Hormuz.

Regional disruptions have kept tensions high, with the average risk premium on crude oil between $25 and $30 per barrel during major geopolitical conflicts since 2016.

The price of West Texas Intermediate crude is likely to range between $89 and $94 per barrel, based on a fair value estimate of $64 as of January 9, but the situation this time is different. The Iranian protests coincide with a fragile global economic outlook, coupled with the OPEC+ alliance retaining excess production capacity, and Venezuelan oil may soon return.

Bloomberg Intelligence expects the increase in the risk premium for oil to range between $10 and $15, indicating a price range between $74 and $79 per barrel at most.

Venezuelan Oil Exports Recover Over 18 Months

Oil traders are concerned about supply disruptions and are now often focusing on hedging against price increases amid Iranian unrest. This is indicated by options contracts reflecting a 25% probability of supply risks.

However, the excess capacity of OPEC+ and the return of Venezuelan oil could provide additional crude to the market, helping to curb oil prices in the short term.

Venezuela is home to about one-fifth of the world's oil reserves, with estimates indicating that there are 303 billion barrels beneath its territory, according to the 2024 OPEC report.

Despite this, its crude oil exports in December were only about 423 thousand barrels per day, less than 1% of the global daily production, down from 1.8 million barrels per day in May 2017, due to weak investments and poor asset management, which have crippled production.

However, Trump expects a flow of foreign investment into the exploration and production sector in the country, which will increase oil production over the next 18 months. Bloomberg Intelligence predicts that Venezuelan oil exports will reach about 1.1 million barrels per day by December 2026, 1.5 million barrels per day by December 2027, and 2 million barrels per day by December 2028.

OPEC+ Extends Production Increase Halt Due to Venezuelan Oil

OPEC+'s decision to stop production increases during the first quarter, after spending most of 2025 boosting production by about 2.88 million barrels per day, reflects a deliberate recalibration in the face of the looming threat of oversupply reshaping pricing mechanisms.

The increase in production has helped the coalition regain control of the market, but the rising risk of a supply glut is prompting a reconsideration, especially given the worsening spiral of contraction in China and deterioration in the U.S. labor market, both of which will pressure demand.

With expectations that Venezuelan oil will reach global markets within the next six to 18 months, OPEC+ is likely to maintain current production levels until after the first half of 2026, with about 1.25 million barrels per day of planned increases remaining.

Meanwhile, policymakers will assess the impact of U.S. tariffs, the contraction in China, and Venezuelan oil exports on the supply and demand dynamics in the global oil market.