Geopolitical Risk Premium Returns in Oil Markets


The risk premium in oil markets has increased significantly since February 2025. The situation in the Middle East remains volatile, and the Strait of Hormuz is a recurring hotspot of tension. Past incidents, such as the 2019 attacks on Saudi Aramco facilities, demonstrate how quickly supplies can be disrupted. This history keeps traders constantly alert. The current rebound in West Texas Intermediate prices reflects a reassessment of these risks, as the market now prices in a higher likelihood of supply disruptions.
Main Factors Driving the Current Risk Premium
Iranian naval maneuvers near the Strait of Hormuz have increased.
Diplomatic efforts to ease tensions have stalled.
Insurance premiums for oil tankers passing through the strait have risen.
Military presence from the U.S. Navy and allies has increased.
Global oil inventories remain below the five-year average.
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