The war premium is back in oil markets, as the Iran conflict adds a geopolitical risk component to crude pricing that had been largely absent for years. Brent crude trading above $91 a barrel — a more than 25% weekly gain, the biggest since the Covid-19 pandemic — represents not just a supply disruption but a repricing of oil to include the risk of a prolonged and potentially escalating conflict in the world’s most oil-rich region.
Oil analysts distinguish between the physical supply disruption component of a price spike and the risk premium component — the extra price that markets pay to reflect the uncertainty around future supply. In the current situation, both components are substantial. The physical disruption is real and immediate: Kuwait has cut production, Saudi Arabia and UAE face storage exhaustion within 20 days, and Qatar’s LNG exports are offline. The risk premium adds to this the possibility that things get significantly worse.
The scale of the risk premium reflects the uncertainty around a conflict that is still evolving. Qatar’s energy minister has provided one data point for the risk calculation: $150 per barrel, the price he predicts if all Gulf exporters halt production. Nine tankers have already been attacked, around 600 vessels are stranded, and the Strait of Hormuz remains effectively closed to commercial traffic. These are not distant risks — they are current realities that could deteriorate further.
The Trump administration’s attempt to reduce the risk premium by offering military escorts for tankers has been only partially successful. While it has prevented a complete commercial shutdown of the strait, it has not reassured the market sufficiently to bring prices down. The insurance and logistical challenges of operating in a conflict zone remain prohibitive for most operators, and the effective closure of the strait continues.
Financial markets have incorporated the war premium across asset classes. Bond yields have surged, stocks have fallen sharply, and rate cut expectations have been abandoned. Airlines, among the businesses most sensitive to the war premium in jet fuel costs, have suffered the biggest corporate losses. The war premium in oil is a measure of geopolitical uncertainty — and as long as the Iran conflict remains unresolved, it is unlikely to diminish significantly.
