Oil markets tighten amid global uncertainty

[WORLD] Oil prices climbed roughly 2% on Tuesday, reaching a two-week high as geopolitical tensions dampened hopes for easing sanctions on major OPEC+ producers Russia and Iran. Brent crude rose by 1.5% to $65.63 per barrel, while WTI crude gained 1.4% to $63.41. Analysts cited diminished prospects for both a Russia-Ukraine ceasefire and a renewed Iran nuclear deal as key drivers behind the increased “risk premium” in energy markets.

Russia remains a major global oil supplier and a key member of the OPEC+ alliance, while Iran was OPEC’s third-largest producer in 2024. The persistence of Western sanctions on both nations has kept a significant portion of global oil supply constrained. Additionally, wildfires in Alberta, Canada have curtailed oil sands output by around 344,000 barrels per day—roughly 7% of the country’s production—further tightening global supply.

Meanwhile, economic signals are mixed. Euro zone inflation fell below the ECB’s target, potentially setting the stage for interest rate cuts. In the U.S., inflation risks from tariffs are growing, while the labor market shows early signs of softening. The OECD also downgraded its global growth forecast amid rising trade tensions, and U.S. crude inventories are expected to have declined for a second consecutive week.

Implications for Businesses, Consumers, and Policy

Energy Market Volatility Likely to Persist

For businesses, particularly in energy and logistics, the current geopolitical climate signals continued oil price volatility. The absence of diplomatic progress on Russia and Iran suggests limited relief in crude supply, keeping upward pressure on prices. Firms with high energy dependency may face elevated input costs well into the second half of 2025.

Consumers Face Cost-of-Living Pressure

Higher oil prices translate into higher transportation and heating costs for consumers, especially in import-reliant regions. Though lower interest rates in the Euro zone may cushion the blow slightly, U.S. households could feel the strain if inflation remains elevated and wage growth softens amid weakening labor conditions.

Policy Choices Become Harder

Central banks face a delicate balancing act. While easing inflation in Europe might justify rate cuts, U.S. policymakers must navigate the inflationary effects of trade tariffs alongside economic softening. In parallel, trade negotiations and geopolitical diplomacy are under renewed urgency, as energy prices become increasingly entangled with national security and economic policy.

What We Think

Geopolitical risk is back at the center of oil markets—and this time, the squeeze is threefold: diplomacy, climate, and trade. The inability to unlock more crude from sanctioned producers like Russia and Iran, combined with climate-induced production hits in Canada and erratic global trade dynamics, is creating a fragile supply-demand balance. For now, expectations of continued inventory drawdowns and limited production boosts point to a structurally tighter market.

This reinforces the importance of energy diversification—both in national policy and corporate strategy. Governments with exposure to oil price shocks will need to accelerate energy transition plans or risk macroeconomic instability. Meanwhile, investors should expect energy stocks to stay buoyant but volatile. In short: the oil market may be entering a period where geopolitical uncertainty is not just a headline risk—it’s the structural baseline.