Global oil markets extended gains on Thursday, with Brent crude trading above $71 per barrel, intensifying concerns that domestic fuel prices could soon rise.
As of 16 minutes into the latest session, Brent crude stood at $71.02, up $0.67 (+0.95%), while WTI crude traded at $65.86, also up $0.67 (+1.03%). The latest rally follows a sharp mid-week surge that pushed global benchmark prices to their highest close since late January.
Geopolitical Tensions Drive Risk Premium
Brent crude futures jumped 4.4% on Wednesday to settle at $70.35 per barrel, marking their strongest finish since January 30. The gains were largely fueled by escalating geopolitical developments involving Iran.
Reports confirmed that Iran and Russia are conducting joint naval drills in the Sea of Oman and the northern Indian Ocean, just days after Iran’s Revolutionary Guards carried out exercises near the Strait of Hormuz. This waterway accounts for approximately 20% of global crude oil shipments, making it one of the most critical chokepoints in the energy market.
Meanwhile, Iranian Foreign Minister Abbas Araqchi signaled that Tehran and Washington had reached an understanding on key “guiding principles” in ongoing talks. However, the positive remarks failed to offset the impact of military maneuvers in the region.
As a result, crude prices continue to fluctuate in response to shifting headlines.
A Market Priced for Two Outcomes
In the past 14 trading sessions, Brent has declined six times and advanced eight, underscoring the absence of a clear trend. Instead, prices are being steered by geopolitical risk sentiment.
Analysts estimate the current risk premium embedded in crude prices at between $7 and $10 per barrel. This reflects concerns that negotiations between Washington and Tehran could collapse, potentially prompting U.S. President Donald Trump to authorize military action, possibly alongside Israel.
However, the premium remains relatively moderate. That suggests markets largely believe any confrontation would avoid significant disruption to oil production or exports through the Strait of Hormuz.
Historically, even during periods of direct conflict in the Middle East, crude supplies have continued flowing. The prevailing assumption is straightforward: despite political and military tensions, all parties have a shared interest in preventing a prolonged supply shock.
The Unpriced Escalation Risk
Currently, the market appears to be pricing in one of two primary scenarios.
First, a limited diplomatic agreement could emerge, potentially centered on nuclear oversight in exchange for partial sanctions relief. Such a deal would likely ease tensions and cap further price gains.
Second, negotiations could fail, leading to targeted military strikes. Even in this case, traders seem to assume oil infrastructure would remain largely intact.
Yet the scenario receiving minimal pricing attention involves a broader escalation. If Iran were to retaliate by targeting oil facilities across the Gulf region, it could trigger sustained supply disruptions and sharply higher prices.
Such a move would represent a significant escalation, especially ahead of politically sensitive periods in the United States. While still viewed as unlikely, the probability of severe disruption may be higher than current market pricing suggests.
Fuel Price Implications
With Brent crude now firmly above $71 and maintaining upward momentum, downstream fuel markets are likely to respond. Higher crude input costs typically translate into increased gasoline and diesel prices in the coming pricing cycles.
Unless geopolitical tensions ease quickly, consumers may soon face higher pump prices, as global oil markets continue to price in Middle East uncertainty.