Geopolitical Tensions Propel Oil Markets

Key Moments

Escalating Conflict and the Strait of Hormuz

RaboBank’s Global Strategist Michael Every reports that the latest Gulf conflict and the shutdown of the Strait of Hormuz have driven a sharp spike in energy markets, leaving crude prices around 60% higher than before the war began. The disruption is transmitting unevenly across the energy and petrochemical complex, with certain fuels and feedstocks showing more acute stress than others.

Every notes that the closure of this key chokepoint is already having pronounced effects as the war moves into its fifth week. While overall oil benchmarks have risen, the impact on specific refined products and related commodities is more severe, particularly where supply routes rely heavily on flows through Hormuz.

Product-Specific Stress and Regional Dislocations

The strategist points out that not all fuels and petrochemicals are being hit equally. He highlights that some products are becoming unavailable in certain locations, with Asian markets facing notable strain in diesel and jet fuel. Other segments of the energy and petrochemical chain – including bunker fuel, fertilizer, naphtha, sulphur, and helium – are also exposed, with the potential for broader spillovers if the conflict persists.

Potential Scale of the Energy Shock

RaboBank cautions that the current dislocations could evolve into a far more serious crisis if the conflict proves long-lasting. The bank states:

“Were it to extend for months, the crisis could equal the Covid-19 epidemic and the 1970’s oil shocks combined – and that doesn’t account for supply-side damage to Gulf energy flows from war and oil-well shut-ins.”

That assessment underscores the risk that, beyond immediate price spikes and localized shortages, prolonged hostilities could reshape global energy trade and pricing dynamics through both physical infrastructure damage and extended production disruptions in the Gulf.

Base Case Outlook and Geopolitical Overhang

Despite identifying extreme downside risks, RaboBank currently maintains a base-case scenario that assumes a relatively near-term resolution of the conflict. The bank writes:

“In short, for now we are sticking to our geopolitical base-case scenario of the war being over in 2-3 weeks on largely US terms, then a slow return to normal for energy… but not for geopolitics: the world won’t look the same on the other side of this whether the US wins or loses.”

This view points to a two-speed adjustment: a gradual normalization in energy markets once hostilities subside, contrasted with a more lasting shift in the broader geopolitical environment and, by implication, in longer-term risk premia attached to strategic energy supply routes.

Tail Risks and Market Uncertainty

While the base case anticipates an end to the war within a few weeks, RaboBank highlights that uncertainty remains elevated. The commentary concludes with a warning:

“Yet there are obviously huge fat tail risks.”

For investors and market participants, this indicates that while a moderate normalization path remains the central expectation, the probability of extreme scenarios – including a prolonged and deeply disruptive energy shock – is considered significant enough to warrant close attention.