2025, The Year Geopolitical Risk Premiums Vanished From The Oil Market

In 2025 the global oil market weathered several black‑swan events — notably the Israel–Iran conflict and Ukraine’s strikes on Russian refineries — yet price dynamics remained remarkably subdued. Despite an increasingly perilous geopolitical backdrop, abundant energy supplies have contributed to a new equilibrium in which market calm appears to be the prevailing state.

Measured by multiple indicators, 2025 was a year of intense geopolitical disruption, underscored by the return of U.S. President Trump to the White House in January and the rapid succession of policy, trade and diplomatic initiatives that followed. A pivotal moment for energy markets occurred on June 12, when Israel struck multiple military, governmental and nuclear sites inside Iran. Ten days later, on June 22, the United States joined the operations with “Operation Midnight Hammer,” targeting Iran’s fortified nuclear infrastructure.

For years market participants regarded a U.S. strike on Iran as one of the most severe tail risks, with analysts warning that Iranian retaliation could include attempts to close the Strait of Hormuz, the narrow chokepoint that handles nearly one‑fifth of global oil and gas shipments. Conventional wisdom held that even the threat of such disruption would propel oil into triple‑digit territory.

Although the Chicago Board Options Exchange crude‑oil volatility index (.OVX.US) spiked to levels not seen since early 2022 during the initial phase of the 12‑day Israel–Iran conflict, the actual price response was muted. Brent crude futures rose from USD 69 per barrel on June 12 to a one‑week peak of USD 78.85, then retreated quickly; by June 24, when a U.S.‑brokered ceasefire between Israel and Iran was announced, prices had returned to pre‑conflict levels. Even at their peak, prices did not exceed the year’s earlier highs.

Viewed on a daily closing basis, oil futures in 2025 traded within a relatively narrow band of USD 60 to USD 81 per barrel, with the year’s high occurring in January prior to OPEC’s production increases. That trading range was notably tighter than in the prior year. By contrast, when Russia amassed forces near Ukraine’s border in December 2021, oil traded around USD 70 per barrel and then surged to nearly USD 130 per barrel by March 8, two weeks after the invasion, remaining elevated for almost a year. The 2022 spike was driven largely by expectations that Western sanctions would sharply curtail Russian exports — a scenario that ultimately proved less disruptive than feared — which helps explain the lower sensitivity of prices to geopolitical shocks in 2025.

When Ukraine attacked Russian refineries and export terminals in April, concerns about diesel shortages and soaring refining margins did not translate into significant crude‑price moves. Similarly, the October imposition of comprehensive sanctions on Rosneft and Lukoil — companies that together account for roughly 5% of global crude output — produced only limited and short‑lived price upticks.

The principal reason for this market composure is straightforward: global oil and gas supplies are plentiful. Over the past decade the United States has led supply growth and become the world’s largest producer and exporter of both crude oil and liquefied natural gas. Rising output from the Permian Basin and the Gulf of Mexico helped U.S. crude production reach a record 13.84 million barrels per day in September. OPEC+ members, including Russia and Kazakhstan, ended years of coordinated cuts and increased production throughout 2025, while non‑OPEC producers in the Americas — Argentina, Canada, Brazil and Guyana — also expanded output. The International Energy Agency projects that this robust production growth could create a surplus approaching 4 million barrels per day in 2026, a condition that may persist into the following year. Technological advances in drilling mean current price levels remain sufficient for U.S. shale and other producers to sustain or raise output, and OPEC+ has signaled plans to accelerate capacity investment in the coming years.

That abundance, however, does not eliminate risk. Complacency can itself become a vulnerability. As Howard Marks of Oaktree Capital Management observed, perceived low risk often coincides with the highest actual risk. In practice, OPEC could reverse course and curtail production increases, and renewed hostilities between Israel and Iran could intensify tensions. Yet for the market to move from calm to panic, tangible supply disruptions would need to materialize. In an era defined by ample energy availability, geopolitical anxieties alone have proven insufficient to unsettle oil markets.