The oil markets were volatile and have been close to multi-month highs this week with the geopolitical risks based on the Middle East still taking the center stage in investor sentiment. In spite of a slight pullback on Friday, both benchmark crude contracts are poised to have their biggest monthly profits in years, driven mainly by the increase in tensions between the United States and Iran, the increased overall supply shocks and shifting demand patterns.
Geopolitical Risk Fires up the market sentiment
This week, oil climbed sharply due to the escalating concerns of the possibility of the United States launching some military action against Iran. Iran is one of the significant oil producers under the Organization of the Petroleum Exporting Countries (OPEC) and a major crude supplier in the world. A mere threat of war has already trickled down markets, forcing traders to hedge in a so-called geopolitical risk premium – a buffer in the crude price to cover the disruption of supplies.
The president of the U.S Donald Trump gave stern threats in which he advised Tehran to negotiate on its nuclear programme or risk facing military sanctions, which helped to push oil futures high. The leadership of Iran replied with its own threat, which was a strong retaliatory action in case of a strike. The risk perception was escalated in the financial markets because of that exchange of threats.
Price Movements: A Price Analysis
Oil prices eased slightly on Friday despite geopolitical tension because markets readjusted the chances of a direct American attack – partly on account of the indications that dialogue, not a direct attack, may be imminent.
Key price movements include:
- Brent crude contracts were down approximately a dollar and a half to trade close to $69.61 a barrel by early trading on Friday morning, pulling back slightly after reaching the highest level since late July.
- In the U.S.West Texas Intermediate (WTI), the price went down by about 1.25 to 64.17 per barrel, after it had previously increased to its highest level since the end of September.
Both benchmarks have been tracking huge monthly gains even with the pullback. In January, Brent is set to increase by more than 14.5 per cent, its biggest monthly gain since the start of 2022, although WTI is on track for its biggest monthly rise since July 2023.
This spurt is a strong reversal of the falling price pressure witnessed in late 2025 where oil experienced slumps with regard to oversupply and weak demand.
Underlying Market Drivers
1. Uncertainty in the Geopolitics of Iran
The main force to the bullish sentiment is the fact that there is a threat of a geopolitical shock in the Middle East which produces a large share of oil exports to the world.
The geographic positioning of Iran and its sensitivity as a key exporter, further intensified by the geographic positioning of the Strait of Hormuz, increases the sensitivity of the market. It is a small passageway that directs about a fifth of the world’s crude shipments; any disturbance at the location would have an impact globally, possibly choking oil supplies of Saudi Arabia, Kuwait, Iraq, Qatar and UAE.
The fear of supply bottlenecks in the prices rather than the current losses of supply is incorporated in the risk premium. Markets are likely to have future uncertainty fully priced long before any actual effect is felt.
2. Outside Middle Eastern Supply Problems
It is not just Iran that has to experience the effects of geopolitics. Analysts attribute it to supply shock in other oil areas:
Kazakhstan briefly reduced production in the giant Tengiz field following electrical faults in millions of barrels of production – but it has since declared a gradual re-opening.
Weather has been a challenge in exporting in Russia.
Meanwhile, the U.S. eased some sanctions on Venezuela’s oil industry, adding another layer of complexity to global supply expectations.
The extreme weather conditions experienced in the U.S. during winter have also caused the output of crude and condensate to decline by about 340,000 barrels per day (bpd).
These outages have combined to put an estimated 1.5 million bpd out of commission – a notable disruption given strong global demand in the world.
3. Dollar Strength and Psychology
Friday was also calm in terms of prices with the U.S. currency recovering as investors responded to the news that President Trump will shortly have a new Federal Reserve chair nominee. The appreciation of the dollar normally undercuts commodities that are priced in U.S. currency and this makes oil more expensive for buyers using other currencies.
Also, fears about potential government shutdown in the U.S. dulled the anticipation of political ineffectiveness – a temporary relief to risk assets.
Analyst Opinions: The Future
Analysts remain cautious, though they perceive a number of ways forward:
- Specific military action: Although any military action may happen, it should be targeted, according to JPMorgan analysts, and they will not harm the essential oil infrastructure, eliminating the widespread destruction of supplies.
- Limited escalation: According to financial firm Citi, there is a 70% chance that the U.S and allied forces will respond with restrained action to put pressure on an adversary as opposed to full scale war. This may comprise such actions as oil tanker seizures along strategic chokepoints.
- Longer-run de-escalation: Citi and others also point out that negotiated deals can also lower the premium of geopolitical risk later, which might take off prices.
Conclusion
Oil markets entered February 2026 on a bullish footing after geopolitical risk and supply uncertainties drove prices toward multi-month highs. Although prices eased slightly following signs of potential diplomatic engagement between Washington and Tehran, the overall trend remains firmly influenced by tension-driven premiums and real supply constraints elsewhere.
With complex interactions between political developments, currency markets, and global supply chains, oil price volatility is likely to persist. Investors, producers, and policymakers will be closely watching developments in the Middle East Geopolitical and beyond as the industry navigates this fraught period.
