Oil markets regained a geopolitical edge after the US advised vessels to avoid Iranian waters while transiting the Strait of Hormuz, reviving fears of supply disruption at one of the world’s most critical energy arteries. The move interrupted a brief period of easing tensions following nuclear talks between Washington and Tehran, reminding investors how quickly Middle East risk can reprice crude even in a market already debating oversupply.

Hormuz Risk Re-Emerges in Fragile Market Conditions

West Texas Intermediate futures climbed close to 2%, trading near $65 a barrel, after the US Department of Transportation issued a maritime advisory urging American-flagged ships to stay as far from Iranian waters as possible. The guidance followed reports that Iran’s Islamic Revolutionary Guard Corps harassed a US-flagged tanker last week, reigniting concerns around the security of Hormuz, through which roughly a third of global seaborne oil flows.

From a market psychology standpoint, the warning mattered less for what it changed on the water and more for what it signaled to traders. Even without an outright disruption, the perception of rising risk is enough to lift prices in the short term, especially after last week’s pullback had largely stripped out the geopolitical premium.

Diplomacy Versus Deterrence

The rebound came just days after Iran and the US described nuclear talks in Oman as constructive, a development that had weighed on prices by reducing near-term conflict risk. Yet the tone shifted as Donald Trump reiterated his hardline stance toward Tehran, including threats of airstrikes and preparations for tariffs on countries doing business with Iran. A scheduled meeting with Israeli Prime Minister Benjamin Netanyahu later this week adds another layer of uncertainty.

This push-and-pull between diplomacy and deterrence has become a defining feature of oil trading in 2026. Each sign of dialogue dampens prices, while even minor security incidents quickly restore risk-sensitive positioning. For investors, it reinforces the need to treat Middle East developments as a volatility catalyst rather than a binary outcome.

Global Flows Add to the Complexity

Beyond Hormuz, traders are also reassessing crude flows to Asia. India’s imports of Russian oil are expected to fall sharply after comments suggesting New Delhi agreed to curb purchases as part of a trade deal with Washington. While India has not formally confirmed such a move, any sustained reduction would force Russian barrels to seek alternative buyers, likely through deeper discounts.

At the same time, Mexico’s decision to halt oil shipments to Cuba following US pressure highlights how sanctions and trade policy are increasingly shaping marginal supply routes. These shifts may appear incremental, but together they influence balances at a time when demand growth is slowing and inventories remain a key swing factor.

What the Market Is Watching Next

The near-term outlook will be shaped by fresh assessments from OPEC and the International Energy Agency, both due to release updated forecasts this week. Their views on demand resilience, spare capacity, and non-OPEC supply growth will determine whether geopolitics can sustain prices or merely add episodic spikes.

Looking ahead, oil appears caught between structural concerns over oversupply and episodic shocks tied to security and trade. That tension suggests volatility will remain elevated, rewarding nimble positioning rather than directional conviction.