What does Trump's warning to Iran, Strait of Hormuz risks mean for oil?

Oil prices are at six-month highs as US-Iran tensions escalate. Brent crude is near $72 on fears of supply disruption and risks around the Strait of Hormuz. Analysts see higher oil prices ahead

Oil on a Boil

 

Crude oil prices have climbed to a six-month high as geopolitical tensions intensified following reports that US President Donald Trump had given Iran a 10-15-day ultimatum to comply with US demands or face repercussions. West Texas Intermediate traded near $67 per barrel after a sharp 7-per cent rally over two sessions, while Brent approached $72. 

 

This renewed uncertainty has strengthened bullish momentum across energy markets. Although crude fell 20 per cent in 2025, it has rebounded nearly 18 per cent year-to-date, driven largely by heightened geopolitical risk. Additional support came from an Axios report indicating no progress toward an Iran nuclear agreement and suggesting that any potential US military action -- likely conducted jointly with Israel -- could extend for weeks and be significantly broader than last month's operation in Venezuela.

 

 

Weekend worries

 

The global market is set to remain tense heading into the weekend amid rising concerns of a potential US strike on Iran. President Trump has deployed a substantial military presence in the Middle East, including two aircraft carriers, fighter jets, and refueling tankers, giving Washington significant tactical options. 

 

This buildup is intended to pressure Iran into agreeing to terms on its nuclear program, heightening geopolitical uncertainty and market volatility.

 

Iran plays a disproportionately large role in the global energy system, not only because of its significant crude output but, more importantly, because of its strategic position along the Strait of Hormuz. Iran produces roughly 3.2–3.5 million barrels per day and exports 1.5–2 million barrels per day, making it Opec's fourth-largest producer and a key supplier to Asian refiners, particularly China. 

 

Given that a 1 mbpd supply swing typically moves oil prices by $5–$6 per barrel, any disruption to Iran's output or exports has immediate pricing consequences. Current market dynamics already reflect a $7–$10 geopolitical risk premium, driven by uncertainty around Iran's security environment and its energy infrastructure.

 

The Strait of Hormuz magnifies Iran's influence. As the narrowest chokepoint in the global oil trade - just 2.2 miles wide at its tightest shipping lane - it accommodates the transit of 20–21 million barrels of oil per day, equal to 20 per cent of global consumption and up to 30 per cent of all seaborne crude shipments. It is also vital for global LNG flows, particularly from Qatar. While Saudi Arabia and the UAE maintain bypass pipelines, these alternatives can cover only 15–20 per cent of normal volumes, leaving the world heavily dependent on safe passage through the Strait.

 

Any escalation - whether military conflict, sanctions, or domestic unrest - could sharply restrict tanker traffic, raise shipping and insurance costs, and trigger rapid price spikes. The impact would be most severe in Asia, where nearly 80 per cent of the oil passing through the Strait is destined. Ultimately, while Iran's direct production matters, its control over Hormuz remains the single most critical factor shaping global oil market risk.

 

Macro headlines

 

While the January FOMC meeting occurred before this data release, the minutes recognised that inflation risks are now broadly balanced against labour market uncertainty, which has receded of late given evidence of stabilisation after a period of "gradual cooling". 

 

Across the Atlantic, Q4 GDP disappointed in the UK, but showed resilience in the Euro Area. Thankfully for the UK, the latest inflation data gave the BoE support to continue cutting through the first half of this year as annual headline inflation slowed to 3.0 per cent year, to be in line with core inflation at 3.1-per cent yr. Importantly, services inflation looks to be abating as hoped, now 4.4 per cent year after being stuck around 5.0 per cent year through the first half of 2025.   

 

Option chatters

 

Option markets have intensified this week as rising risk premiums increasingly reflect in oil derivatives. Traders are paying higher prices for bullish call options to hedge against potential price surges, with elevated premiums persisting throughout the year. Notably, trading activity included Brent June $100 call options representing the equivalent of 10 million barrels. Oil market still remains in surplus of 1.5 mbpd as of date and about 290 million bbl of Russian and Iranian crude are currently in floating storage on tankers, more than 50 per cent higher than a year ago, due to blockades and sanctions on Russian and Iranian crude. 

 

Oil price outlook

 

WTI is likely to remain volatile in the near term amid heightened geopolitical risk, potentially testing the $72–$75 range. However, once tensions surrounding Iran ease, the geopolitical risk premium should fade, allowing WTI prices to gradually cool and move back toward the $60 level.