On 12 June 2025, Israel launched a sequence of coordinated airstrikes concentrating on Iran’s nuclear services, marking a dramatic escalation in Center East tensions. The strikes triggered fast world market reactions, with Brent crude oil costs surging over 7%, reaching their highest ranges since 2022.
The geopolitical shock reverberated via power markets, as traders feared potential disruptions in oil provide from the Persian Gulf—a area accountable for almost one-third of worldwide oil manufacturing. Iran, which contributes round 3% of worldwide oil output, may retaliate by concentrating on transport routes just like the Strait of Hormuz, via which about 20% of the world’s seaborne crude passes.
Earlier, oil costs have been below stress for the reason that begin of the 12 months. The decline was attributed to a mixture of things like elevated provides from OPEC and Non-OPEC nations, rising US inventories, geopolitical tensions, and macroeconomic headwinds like weak manufacturing knowledge from main economies.
The worldwide oil provide stays comparatively steady however nuanced. OPEC+ continues to implement manufacturing cuts to assist costs, though some members, together with Russia, have elevated exports, including to world provide. Non-OPEC producers, significantly america, have additionally ramped up output, contributing to a well-supplied market.
On the demand facet, progress has been tepid. As the worldwide power panorama continues to evolve, the crude oil demand forecasts for China and america—the world’s two largest shoppers—supply vital insights into market dynamics.The U.S. economic system is exhibiting indicators of cooling, with latest PMI knowledge indicating a slowdown in manufacturing exercise. Financial uncertainties, coupled with tariff pressures and decrease oil costs, have dampened consumption. Moreover, the U.S. shale trade faces challenges resembling rising breakeven prices and useful resource depletion in prime drilling areas.Regardless of its ongoing financial transformation, China is anticipated to see a modest improve in crude oil demand, projected at round 2% year-on-year. Whereas Chinese language equities have rallied and oil stockpiles surged by 8% earlier this month, weak industrial output and lacklustre PMI readings recommend that demand progress stays fragile.
The U.S. Vitality Data Administration (EIA) has revised its world oil demand forecast downward by 0.5 million barrels per day (b/d) for 2025, citing weaker-than-expected financial exercise and the influence of recent commerce tariffs. The company forecast a fair decrease common worth for 2026, reflecting expectations of continued provide progress and modest demand.
Different companies and market analysts echo this cautious outlook. Whereas seasonal components resembling summer season journey and elevated cooling demand within the Northern Hemisphere might supply short-term assist, the broader development factors to subdued worth progress.
Geopolitical tensions within the Center East, and the Russia-Ukraine battle have added a danger premium however haven’t but considerably disrupted provide. Nonetheless, if the continued Israel-Iran tensions are extended and Iran makes an attempt to dam key maritime routes, it may set off main rallies in costs.
In conclusion, whereas the crude oil market just isn’t dealing with a direct disaster, it’s working below a cloud of uncertainty. The interaction of cautious demand, ample provide, and geopolitical dangers means that costs will stay unstable however largely capped for the rest of 2025.
(The writer is Head of Commodities, Geojit Investments Ltd)
