Trump sets Iran deal deadline as oil climbs to six month high

Key takeaways:

• Oil prices are being driven mainly by geopolitics, because supply and demand fundamentals have not changed much beyond short lived disruptions in Kazakhstan and seasonal weather impacts in North America.

• The market is assigning meaningful probability to a military action involving Iran, and that risk is adding a premium to prices that may not be fully priced yet.

• The main downside risk is not simply the loss of Iranian exports, since those volumes could be offset, but the potential disruption to flows through the Strait of Hormuz.

• A severe scenario would involve retaliation that targets regional energy infrastructure, which could affect major producers and create a much larger shock than the removal of Iranian barrels alone.

• Even if there is an expected oil surplus in 2026, a major disruption to trade routes or infrastructure could temporarily turn that surplus into a deficit and push prices higher.

• The build up of Russian, Iranian, and Venezuelan crude on water reflects tougher enforcement and weaker buyer appetite for risk, although sanctioned barrels often find buyers over time.