Discover how the global economy is tied to oil and how oil is affected by policy and geopolitics.
When tensions in the Middle East began to escalate earlier this year, markets braced for the familiar chain reaction: fears of disrupted supply, speculative spikes in crude prices, and renewed volatility across global assets. In oil, these shifts are amplified. A targeted attack on infrastructure, a diplomatic breakdown, or a sudden production cut by an OPEC member can trigger price movements that ripple from regional economies to the world’s largest financial centres.
Today, those ripples are colliding with other fault lines, creating one of the most complex oil market environments seen in years. Understanding this landscape means understanding not just OPEC’s influence, but the geopolitical forces shaping its every move.
When oil supply meets geopolitical turbulence
In oil markets, a “shock” is less about surprise and more about scale. It’s an event sudden enough to jolt supply, demand, or both. Wars, sanctions, unrest, and infrastructure attacks can choke supply almost overnight. On the other side of the equation, shifts in economic policy, trade restrictions, or even sudden surges in industrial activity can upend demand patterns just as quickly.
In practice, these shocks rarely happen in isolation. A supply cut triggered by conflict can also spark speculative buying, amplifying price swings. This is why understanding the source, whether it’s a pipeline sabotage, a tariff dispute, or a regional conflict, is crucial for anyone trying to navigate oil’s notoriously sensitive price dynamics.
Geopolitical shocks and knock-on effects
The last few years have shown just how quickly a single geopolitical event can redraw the oil map. The Russia-Ukraine conflict is a prime example. Prior to the war, the EU sourced a quarter of its crude oil and 40% of its diesel from Russia. Within months, sanctions and outright bans from the US and EU cut those flows almost entirely.
In response, the Organization for Economic Co-operation and Development (OECD) released 60 million barrels from strategic reserves to ease prices. But the real shift was structural. Gulf states increased imports of discounted Russian crude, rerouting refined products back to Europe. Prices briefly spiked above 110 USD per barrel before settling into a lower range as new trade patterns took hold.
Three years on, the EU has replaced much of its Russian fossil fuel imports with alternative suppliers and, crucially, ramped up renewable energy. Green energy’s share of EU production has more than doubled since 2021, and if that trajectory continues, it could further soften oil demand and prices in the years ahead.
Recent events affecting oil prices
When tensions flare in the Middle East, oil markets react. Prices shift on mere whispers of supply disruption, shipping routes are reassessed, and traders weigh the likelihood of escalation. In a commodity as globally integrated as oil, even localized conflict can send ripples across the globe, reshaping trade flows and market sentiment in real time.
Recent flare-ups involving Israel, Iran, Yemen, and Saudi Arabia have done just that, heightening supply fears. These developments come on top of unrest in Libya and Venezuela, all oil-producing countries, compounding uncertainty in a market already sensitive to political risk.
OPEC’s balancing act: Unity, strategy, and survival
The organization’s ability to stabilize prices for members adhering to agreed production quotas. But compliance isn’t always guaranteed. Iraq, Kazakhstan, and Russia have all been frequent overproducers, sometimes driven by economic necessity or political pressure. Even Saudi Arabia, OPEC’s de facto leader, has exceeded agreed limits.
Managing this balance is even more complex when members are under sanctions or engaged in conflict. Russia’s current status—under heavy Western sanctions but also the world’s third-largest oil producer—complicates OPEC’s decision-making. The group must avoid alienating Western buyers while also protecting its members’ economic interests.
Adding to the challenge, major oil producers outside OPEC+, such as the US, Canada, and Brazil, collectively account for 40-50% of global production. This means OPEC’s ability to control prices is never absolute.
Oil affects the price of everything
Oil’s political and economic weight comes from its role as the foundation input across industries. From transportation to manufacturing, agriculture to energy production, oil price movements ripple through nearly every supply chain. Even the process of extracting and transporting oil depends on oil itself.
Higher prices increase costs across the board, while lower prices can ease inflationary pressures. Oil price shifts also influence currency markets, particularly commodity-linked currencies like the Canadian dollar, Australian dollar, and Norwegian krone. Because oil is priced in US dollars, a stronger dollar tends to push oil prices higher for non-dollar buyers, dampening demand and consequently prices.
Trading oil in a fractured geopolitical landscape
The interplay between OPEC policy, geopolitical risk, and macroeconomic forces makes oil one of the most challenging yet potentially rewarding commodities to trade. Price movements can be swift, driven by factors far beyond supply and demand fundamentals.
For traders, sustainability and growth in this market require more than following production reports or price charts. They demand an understanding of political risk, economic policy shifts, and global trade flows. In today’s environment, where regional conflicts, sanctions, and shifting alliances are redefining supply chains, oil can be seen as a geopolitical barometer.
Market analysis by Quoc Dat Tong, Senior Financial Markets Strategist at Exness.