Escalating Geopolitical Tensions Spark Fears of a Global Oil Supply Shock

2026-01-15 economy

New York, Thursday, 15 January 2026.
Citing a 40% probability of a massive supply shock, experts warn rising crude prices could reignite inflation as Citi targets $70 per barrel.

Volatile Markets React to Geopolitical Signals

Global markets are currently navigating a precarious balance between escalating geopolitical risks and loosening fundamental supply balances. As of Thursday, January 15, 2026, Brent crude futures retreated to $64.60 per barrel, marking a decline of 2.88% from the previous session [3]. This pullback interrupts a significant rally observed earlier in the month, where March contracts surged 10% in the week leading up to January 12 [1]. The volatility underscores the market’s acute sensitivity to unrest in major oil-producing regions, specifically Iran and Venezuela, which had previously pushed prices to their highest levels since November [1].

Geopolitical Flashpoints and Strategic Risks

The recent upward pressure on energy prices was largely fueled by renewed friction involving the United States and key OPEC members. Tensions spiked following a U.S. raid in Venezuela and threats of military action in Iran, prompting fears of supply disruptions [1]. Matt Gertken, chief geopolitical strategist at BCA Research, assessed a 40% probability of a “massive global oil supply shock” as of January 12, citing these escalating risks [1]. The strategic importance of the Strait of Hormuz remains a critical concern for traders; Iran controls this waterway, through which approximately 20 million barrels of oil transit daily [6]. Any interference there could trigger a pronounced and sustained price surge [6].

Fundamental Balances vs. Fear Premiums

While geopolitical headlines are driving short-term price spikes, the underlying fundamentals of the oil market paint a different picture. Citi analysts note that market balances are significantly “looser” now compared to previous periods of tension, such as the U.S. strikes on Iran in June 2025 [2]. Supporting this view, the U.S. Energy Information Administration (EIA) projects that Brent crude will average just $56 per barrel in 2026, a sharp decrease from the 2025 average of $69 per barrel [5]. This bearish outlook is grounded in rising inventory levels; global oil inventories increased rapidly in the second half of 2025 as production outpaced consumption [5].

Sources

Inflation Oil Prices