Oil prices are hovering near seven-month highs as markets brace for renewed nuclear negotiations between the United States and Iran. Brent crude trades around $72 per barrel after touching its highest intraday level since mid-2025, reflecting a geopolitical risk premium that has steadily rebuilt despite earlier fears of a global oversupply in 2026. The energy market now faces a binary near-term catalyst: diplomatic breakthrough or escalation.

Geopolitical Premium Reasserts Itself

Crude’s rally this year has been driven less by demand surprises and more by geopolitical recalibration. Rising U.S. military presence in the Middle East and public warnings from Washington have increased the perceived probability of supply disruption — even without barrels being removed from the market.

Prediction markets have assigned elevated odds to potential U.S. military action before the end of March, reinforcing defensive positioning across energy derivatives. Historically, crude prices respond asymmetrically to geopolitical threats: the anticipation of disruption adds a premium quickly, while the removal of risk often unwinds it gradually.

Importantly, oil has strengthened even as consensus forecasts for a 2026 supply surplus remain intact. That suggests positioning is currently more risk-driven than fundamentally constrained.

Diplomacy vs. Disruption: The Hormuz Variable

Negotiations in Geneva this week represent the most immediate inflection point. If talks progress constructively, markets may reassess the necessity of the embedded risk premium. However, failure to secure progress — or rhetoric that signals hardening positions — could intensify volatility.

The Strait of Hormuz remains the critical pressure point. A meaningful share of global crude and liquefied natural gas flows through this narrow corridor. Even limited disruption or credible threats to shipping would materially alter supply expectations and tanker rates.

Indeed, supertanker charter rates have climbed sharply, with very large crude carrier contracts reportedly exceeding $90,000 per day — levels not seen in decades. Shipping markets are often early indicators of stress before physical crude balances reflect it.

Oversupply Narrative Meets Resilient Demand

Earlier concerns that 2026 would be dominated by a structural glut are fading. While production growth remains robust in parts of the Americas and OPEC+ retains spare capacity, resilient global demand and episodic supply disruptions have tightened forward sentiment.

Energy equities and futures positioning reflect this tension. Investors are weighing the risk of geopolitical escalation against the possibility that a diplomatic solution could release Iranian barrels more smoothly into the market.

For now, oil is trading as a geopolitical asset rather than a purely cyclical commodity.

What Comes Next?

A clean diplomatic outcome could compress Brent back toward the mid-$60s as risk premium fades. Conversely, escalation — particularly involving shipping lanes — could propel prices significantly higher in a short window.

Oil markets rarely sit still at geopolitical crossroads. With volatility elevated and positioning defensive, the coming days may determine whether crude stabilizes at current levels or enters another repricing phase.