Oil Price Volatility: Historical Patterns Suggest Price Spikes Precede Stabilization During Conflict.

Geopolitical Conflict and Oil Markets: A Historical Analysis

Equirus Securities has examined the historical relationship between geopolitical conflict and oil market movements, concluding that prices often surge in response to tensions before eventually retreating. According to the brokerage's note, "How Oil (over)/reacts to every major War," crude prices have repeatedly embedded a steep geopolitical risk premium at the first sign of conflict, which tends to fade over time as trade flows reroute and supply fundamentals reassert themselves.

Historical Examples

• The 1973 Arab oil embargo following the Yom Kippur War led to a 300% price increase, with OPEC cutting supplies to Western nations.
• The Iranian Revolution in 1979 triggered a 180% price surge as Iranian production collapsed.
• The 1990 Gulf War saw benchmark crude prices jump from around $17 to above $40 per barrel amid fears of prolonged supply losses.
• The 2022 Russian invasion of Ukraine pushed Brent crude from the low $80s to above $120 per barrel, with prices normalizing within months as Russian barrels were redirected to alternative buyers.

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Lessons from History

Equirus notes that oil markets often react first and reassess later, with the real forecasting challenge being estimating how long disruption and embedded premium will persist. The brokerage estimates that a direct loss of Iran's output could mechanically lift oil prices by around 9% to 15%, based on historical price sensitivity to supply shocks.

Current Market Outlook

Equirus estimates that rising production from OPEC+ and non-OPEC countries, combined with relatively comfortable inventory levels, point to a more stable baseline for Brent crude in the $60 to $70 range. However, the brokerage cautions that markets rarely price conflict in linear fashion, and escalating tensions threatening shipping through the Strait of Hormuz could drive crude prices toward the $95 to $110 range.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline