Oil Market Fluctuates Amid Iran-US Tensions: Where Will Prices Go?

The energy market has been experiencing significant volatility in recent days, as investors weigh the fierce crackdown on civil unrest in oil-rich Iran against the reaction from Washington.
Oil Market Fluctuates Amid Iran-US Tensions: Where Will Prices Go?

Iran, Venezuela, and the Difficult Challenges of the Oil Market in 2026

The possibility of US military action against Iran is just the latest geopolitical development in 2026 that worries traders, following the arrest of the President of Venezuela, another oil-rich nation, in a daring operation on January 3.

Oil prices surged to multi-month highs earlier this week following news that the U.S. and UK were withdrawing personnel from a military base in Qatar, fueling speculation that an attack on Iran was imminent. However, prices fell sharply on Thursday as President Donald Trump showed signs of backing down from escalating tensions.

On Friday morning, March Brent crude futures rose slightly by 0.1% to $63.85 per barrel, while February WTI crude futures were nearly unchanged at $59.23 per barrel.
Oil price trends over the past 6 months, oil only recovered in the first few trading sessions of 2026
CNBC spoke with energy analysts and market participants about how they are coping with this uncertainty.

“A bumpy ride”

Marc Ostwald, chief economist and global strategist at the multi-asset brokerage firm ADM Investor Services (London), said traders are bracing for further price volatility.

“The oil market is currently being impacted by two opposing forces. On one hand, the overall picture is one of oversupply, leading to short selling,” he said on Thursday.

“On the other hand, the risk of supply disruptions due to geopolitical tensions in Iran and Venezuela makes the market vulnerable to short-closing, especially given the US threat of a 25% tariff on any country trading with Iran.”

However, he believes concerns about further US military intervention are outweighing other factors, as traders worry about the impact on crucial shipping lanes through the Strait of Hormuz, or the risk of Iranian retaliation against Gulf states.

“As long as those factors exist, the market will remain highly volatile,” he said.

“No substantive change”

Ed Bell, acting chief economist and head of research at Emirates NBD – one of the UAE’s largest banks – told CNBC’s “Access Middle East” program on Thursday that, while the market is closely monitoring the situation, not much has actually changed.

“Ultimately, the market is looking at very basic questions: Will output from key producers in the Gulf change? No. Will the supply of oil or natural gas from the Gulf to international markets change? No,” he said.

He said investor outlooks could change if geopolitical tensions around Iran escalate. Iran is an OPEC member, producing around 3 million barrels of oil per day.

“We haven’t seen any indication that that production has been disrupted by the protests over the past few weeks,” he said. “But clearly, this is a very large volume of oil that could be at risk if there is an escalation or a more serious military event.”

When asked why the market sold off on Thursday, Bell said the reaction was similar to many other geopolitical events in recent years, comparing it to the volatility after the U.S. joined Israeli airstrikes on Iranian nuclear facilities last June.

“Back then, oil prices rose very quickly and sharply, but when it became clear that the underlying picture hadn’t changed, prices quickly corrected. This time too, it was all within a very short timeframe, about 48 hours,” he said. “Because no substantive change has occurred, coupled with the softening tone from Mr. Trump, the market is reacting accordingly.”

Bell’s team’s baseline scenario for the oil market this year, prior to the instability in Iran, was a large influx of supply, moderately increased demand, and “significant excess inventories.” He said he doesn’t see this scenario changing.

“Until there’s any real material change in the flow of oil and gas out of the region, we still expect prices to return to the levels we forecast for 2026 before Iran becomes the focal point,” he told CNBC.

Geopolitical tensions support prices

Paul Jackson, global market strategist for the EMEA region at Invesco, said he expects oil prices this year to be supported by the acceleration of the global economy.

“However, prices have recently been pushed in two opposite directions by two geopolitical events,” he said, referring to expectations that Venezuela could return to global oil supply after the US attack, and then the situation in Iran.

“Geopolitical developments are difficult to predict and can change rapidly,” he added.

He suggested that the situation in Iran “could have a larger immediate impact, thereby creating an upward trend in price forecasts.” “This further strengthens our belief that oil prices will rise this year thanks to the accelerating global economy.”

Jackson’s year-end Brent crude forecast is $75 per barrel, about 16% higher than current levels, but still significantly lower than the $82.63 per barrel at the same time last year.

Implicates for OPEC

Tamas Varga, an analyst at oil brokerage PVM, agreed that geopolitical events would somewhat support prices, but noted that this risk needs to be considered in the context of a market projected to be oversupplied.

“Geopolitics is preventing a sharp price drop, while perceptions of oversupply are restraining the potential for a strong rally. The base scenario is that the recent rally from below $60 a barrel last week won’t last, unless Iranian oil production and exports are significantly impacted by a US military attack – which is unlikely. We see a downside zone around $55 a barrel for Brent, unless Venezuela can significantly increase production.”

However, he believes the likelihood of Venezuela – a founding member of the OPEC alliance – achieving this is “unlikely.”

President Trump has focused on bringing Venezuela’s oil industry under the control of US oil companies since the arrest of President Nicolás Maduro. The White House has stated that Venezuela would supply the US with millions of barrels of oil.

“The question is how OPEC or Saudi Arabia will react to the US taking over a member country’s oil industry, as well as attacks on two other OPEC members, Iran and Nigeria,” Varga said.

“If Venezuela’s oil industry rises from the ashes, who will set the quotas? How will OPEC manage its dwindling influence on the supply side? Will OPEC retaliate by drastically increasing production or cutting it again?”