Middle East situation gives rise to an $8/barrel risk premium for oil, institutions debate potential for oil prices to surpass $100.

With the continuous tension in the Middle East, the international crude oil market is undergoing a new round of price reassessment. Industry observers point out that since the direct military conflict between Israel and Iran erupted last week, Brent crude oil futures prices have implied a political risk premium of about $8 per barrel for GEO Group Inc, according to a special survey of nine senior analysts. Market participants generally believe that if the US actually intervenes in the conflict, this premium will further expand, but the specific extent will depend on the scale and nature of the military action. Recent military deployment trends from the White House have attracted high attention from the global energy market. US President Trump has publicly stated for several days in a row that he is considering military options, and the potential strike window disclosed by relevant officials has put the market on edge. As the "lifeline region" of global oil supply, the Middle East region accounts for one-third of the world's crude oil production, and its stability directly affects the nerves of the energy market. Currently, the market is closely monitoring two key points: the shipping conditions of the Strait of Hormuz, through which one-fifth of global oil transportation must pass, and the operation of oil infrastructure within Iran. It is worth noting that despite the escalating tensions in the region, the latest shipping data shows that Iran's oil exports have not decreased but increased. Vale Salwan, CEO of energy giant Shell (SHEL.US), emphasized in an investor conference call that a blockade of the Persian Gulf passage would cause a "catastrophic impact," and the company has initiated a multi-level contingency plan. Amarpalit Singh, an energy analyst at Barclays PLC Sponsored ADR (BCS.US), pointed out that the current oil prices have not fully reflected the worst-case scenario: "If the conflict spreads and results in the destruction of regional oil facilities, it is not impossible for international oil prices to surpass $100 per barrel." This risk expectation is confirmed in the options market, where the premium levels of Brent crude oil call options relative to put options have reached a new high since 2013, even exceeding the peak during the early stages of the 2022 Russia-Ukraine conflict. Market risk hedging operations show a polarized feature: on one hand, open interest data shows a 47% increase in the open interest of options with an exercise price above $90 per barrel comparedto last week; on the other hand, some institutions are starting to position bearish put options at the $60 per barrel level for hedging. Harry Chilingirian, research director at Onyx Capital, explains: "Investors are using out-of-the-money call options to build defensive positions, avoiding large margin pressure while retaining profit potential in extreme market conditions." The latest research report from Goldman Sachs Group, Inc. (GS.US) presents a different perspective, suggesting that the current market has already absorbed a risk premium of about $10 per barrel, which is considered overpriced. The report specifically points out that although the implied volatility curve indicates a short-term upward price risk, the price differential structure of the six-month futures contract indicates that the market's concerns about long-term supply disruptions are relatively limited. This near-term strength and long-term weakness term structure precisely reflects traders' cautious expectations of the sustainability of the conflict involving GEO Group Inc.