Geopolitical Flashpoints Add to Brent Crude Risk Premium

Key Moments

Rising Energy Risk Premium Amid Middle East Tensions

Rabobank strategist Michael Every sees mounting geopolitical risk around key shipping lanes near Hormuz and the Red Sea feeding directly into a higher risk premium for Brent crude. He notes that Brent was trading at USD 95.5, with benchmark crack spreads at USD 68, and warns that further escalation in the region could lift prices beyond those levels.

Every links the current price setup to concerns that disruption to energy flows through these strategic choke points could further tighten markets and widen refining margins, intensifying the pressure on consumers and the broader global economy.

Conflict Duration Seen as Key to Price Spike

Despite the threat of higher prices, Every stresses that the impact of any potential conflict-driven spike is likely to be constrained by the limited capacity of the key actors to sustain a prolonged confrontation.

He underscores that the United States, Israel, Iran, and Gulf Cooperation Council members all face constraints that would make an extended, no-limits conflict difficult to maintain, with significant implications for the world economy if such a scenario were to unfold.

Strategist Commentary

Every sets out his views on the likely trajectory of the crisis and its market consequences in a series of remarks:

“If we see military escalation, it’s likely to drive energy prices even higher than the $95.5 level Brent was at this morning with benchmark crack spreads at $68.”

“However, it’s unlikely to last long.”

“Neither the US nor Israel, nor Iran, nor the GCC can sustain a no-holds-barred war for long – and the world economy obviously can’t either.”

“As such, we may be close to the beginning of the end of this crisis – it’s just unclear if it will prove a bridge too far for the US or Iran.”

Additional Supply Risks and EU Response

Beyond the Middle East, Every points to further disruptions and policy moves that are feeding into the energy risk backdrop. He notes that Kazakhstan has been forced to halt oil exports through the Black Sea following Ukraine’s drone attacks, adding another potential constraint to global supply flows.

At the same time, he highlights that the European Union is preparing a mission to board Russian “shadow fleet” vessels operating in the Indian Ocean. This effort targets shipping activity linked to Russia, though one significant segment of Russian energy exports is being treated differently.

Every observes that Russian LNG is set to remain outside the scope of EU sanctions. He characterizes this contrast as raising the question of whether it reflects “realpolitik or real weakness?”

Key Market Metrics Referenced