Geopolitical Risks and the Oil Market: The Necessity of a Peace Agreement
Keywords: <\/strong> International oil prices; US-Iran conflict; geopolitical risks; oil market stability; peace agreement
Introduction
In June 2026, international oil prices fell significantly, with Brent crude dropping over 15% from its early-year high, giving market participants a glimpse of easing supply-demand dynamics. However, just as many expected further price corrections, news of renewed clashes between the US and Iran in the Persian Gulf region suddenly emerged, causing oil prices to fluctuate sharply again. The International Energy Agency (IEA) clearly stated in its latest monthly report: “Reaching a lasting peace agreement is a necessary condition for the normalization of the oil market.” This assertion directly points to the core contradiction driving current oil price volatility—geopolitical risks are reshaping the operational logic of the global energy market in unprecedented ways.
Brief Respite of Oil Price Decline
The oil price drop in June seemed to result from multiple positive factors: OPEC+ decided at its early June meeting to gradually increase production to ease supply tightness; US commercial crude oil inventories increased for three consecutive weeks, alleviating concerns about supply disruptions; additionally, worries about a slowdown in global economic growth dampened demand expectations to some extent. These factors collectively drove oil prices down from their highs to around $75 per barrel.
However, this price correction was essentially a “compression of risk premium.” When the market believes supply can remain relatively stable, speculative long positions are unwound, and prices naturally fall. But the problem lies in the extreme fragility of this stability. As the IEA fears, any substantial geopolitical shock could instantly reverse this trend. The armed conflict between the US and Iran near the Strait of Hormuz in mid-June quickly erased nearly half of the previous decline, with oil prices rebounding over 5% in just two days.
Deep Impact of US-Iran Conflict
The US-Iran standoff has a long history, but recent conflicts exhibit new characteristics: the two sides are now in full confrontation not only over the nuclear issue but also on multiple fronts including oil production, transport routes, and regional proxies. The Strait of Hormuz, as the world's most important oil transportation chokepoint, sees approximately 20 million barrels of crude oil and refined products pass through daily, accounting for nearly one-third of global oil trade. Any blockade or escalation of conflict targeting the strait would directly create a massive gap in global oil supply.
More importantly, the US-Iran clashes trigger not only short-term supply disruptions but also a sustained “uncertainty premium.” Speculative capital adjusts positions based on expectations of conflict evolution, while producing and consuming countries also adjust their reserve strategies accordingly. For example, Japan and South Korea, which are highly dependent on Middle Eastern oil, are already evaluating plans to release strategic petroleum reserves, while India is accelerating the signing of long-term contracts with alternative suppliers such as Russia and the United States. These structural adjustments triggered by conflict in turn exacerbate market volatility and instability.
Why a Peace Agreement is a Necessary Condition
The IEA defines a “lasting peace agreement” as a necessary condition for the normalization of the oil market, a judgment based on three core logics.
First, eliminating the uncertainty premium on the supply side. <\/strong> Only when the market is convinced that there is no risk of armed conflict among major oil-producing countries can the long-term marginal cost pricing mechanism function effectively. Otherwise, any short-term temporary production increase decisions cannot offset the price distortion caused by geopolitical risks.
Second, restoring long-term investment confidence. <\/strong> The oil industry relies on capital investments spanning decades. Against the backdrop of frequent US-Iran clashes, international oil companies (IOCs) will inevitably be cautious in exploration and development investments along the Persian Gulf and surrounding areas. Without sustained new capacity investment, the future supply gap will continue to widen, naturally pushing up the price floor.
Third, maintaining the effectiveness of global energy governance. <\/strong> The IEA itself is an energy security coordination body for developed countries, having played a role in coordinating strategic reserve releases and monitoring market data during multiple crises. However, if sustained conflict breaks out among major oil-producing countries, the effectiveness of this multilateral governance mechanism will be greatly diminished. Only through diplomatic means to achieve a balance of interests can the market return to its basic functions of price discovery and resource allocation.
Market Outlook and Policy Implications
Looking ahead to the second half of the year, oil price trends will largely depend on whether the US and Iran can return to the negotiating table. At present, the likelihood of reaching a comprehensive agreement in the short term remains low. The two sides remain deeply divided on key issues such as Iran's missile program, regional proxy forces, and the lifting of US sanctions. Even if a temporary ceasefire or partial de-escalation is achieved, it cannot truly eliminate the deep-seated panic in the market.
For policymakers, this means they cannot rely solely on short-term emergency measures but should instead promote the establishment of a more resilient energy security system. Specific measures include: accelerating the transformation to a diversified energy structure to reduce dependence on resources from a single region; expanding the scale of strategic petroleum reserves and the flexibility of their release mechanisms; and encouraging regional energy cooperation to promote de-escalation of conflicts among Middle Eastern countries. As the world's largest crude oil importer, China needs to actively mediate at the diplomatic level, advocating dialogue over confrontation, and make constructive contributions to maintaining global energy market stability.
Conclusion
The IEA's warning is not alarmist. The oil price volatility behind the US-Iran clashes is essentially a distortion of commodity pricing mechanisms by geopolitical risks. History has repeatedly proven that without lasting peace, a stable and predictable oil market is impossible. The price drop in June was just a brief respite, not a fundamental solution to the problem. Only when the warring parties truly recognize that conflict brings no long-term benefits to anyone and are willing to seek a balance of coexistence within a diplomatic framework can the global oil market usher in true normalization. This is not only the expectation of the market but also a question that global energy security must answer.
