Geopolitical uncertainty? Oil markets no longer care

In years past, US sanctions on Russia’s top two oil firms, a war between Israel and Iran, and American seizures of Venezuelan oil tankers would have been enough to spike oil prices.

All of that happened this year. And yet, prices fell.

Brent crude, the global benchmark for oil prices, is down nearly 20% this year to just over $60 per barrel. Prices even dipped below $60, before tensions between the UAE and Saudi Arabia in Yemen pushed them a tick above. If prices fall much lower, drilling for more oil will no longer be profitable for many energy companies.

“There have been a number of events since 2022 that have threatened to cut off the flow of oil, but that cut off has not materialized,” said Eurasia Group’s energy expert Greg Brew. “So this has made the market even more risk tolerant. It has created a greater degree of risk resilience, particularly when it comes to these day to day events.”

The consequences could be huge. Tumbling prices will discourage firms from production and strain economies that rely heavily on their oil industries, including the United States, Russia, Iran, and several Gulf states. Meanwhile China has shifted sharply toward renewables like solar and wind, leaving it less exposed to oil risks.

Why have prices been dropping? First, major producers have upped their supplies: US production continues to set new records, while Organization of the Petroleum Exporting Countries-plus (OPEC+), the cartel of oil-producing states, has increased production to regain market share. What’s more, oil from sanctioned countries like Russia and Iran – known as “dark oil” – has continued to find its way onto the market. Demand, meanwhile, hasn’t kept up, as concerns over the global economy curtail some investments and as major buyers of Russian oil, notably India, are wary of circumventing Washington’s sanctions.

Why have geopolitical shocks done little? Oil markets have become increasingly focused on fundamentals, says Brew, meaning “the shape of demand, expectation of supply, and the degree to which the two are balanced out.” This year’s geopolitical shocks only threatened oil supplies, but never disrupted them. During the Israel-Iran war, for example, there were fears that Israel would hit Iranian energy sites – Iran is one of the top 10 oil producers worldwide – and that Tehran would close the Strait of Hormuz, through which a fifth of global shipping passes. These concerns caused a brief spike in oil prices. When neither scenario materialized, prices retreated.

“While there was an increase in price during those two weeks, there was no physical disruption,” said Brew. “And as soon as the war ended, or seems to be close to an end, the oil price quickly fell as this increase in risk premium burned off.”

But, but, but. This phenomenon isn’t new.Oil prices spiked when the Gulf War began in August 1990, but plummeted when the US forced Iraqi troops out of Kuwait the following February. The difference this year is that there have been several conflicts, and prices have continued falling.

What will happen next? Given that there’s a glut of oil – including 1.4 billion barrels at sea, about 24% above the seasonal average – Brew expects prices to drop further, sitting between $50 and $60 next year.

“The broader expectation is that [the excess supply] is going to pull prices down through the first half of next year,” said Brew. “At which point, though, a balance will start to be sort of reimposed in markets.”

That process may already be underway: OPEC+ said that it plans to stop increasing its output early next year.

Drill, baby, drill. Low oil prices are welcome news for US President Donald Trump, who understands the importance of energy costs to a political leader’s political fortunes. When gas prices were high during former President Joe Biden, Trump relentlessly hammered the Democratic leader on the issue, reframing the GOP’s traditional “three Gs”of “God, guns, and gays” to “God, gas, and groceries.” Biden’s approval ratings cratered, contributing to his decision to abort his reelection bid.

These low oil prices have also given Trump extra leeway to carry out his foreign policy agenda. Imposing sanctions on Russian oil would have been a lot trickier politically if oil was still trading above $100, as it was early in the Russia-Ukraine war – one reason Biden avoided such moves. It has also allowed him to take more aggressive actions against oil-rich Venezuela: the CIA even struck a Venezuelan port last week, marking the first confirmed US operation inside the country.

Could Democrats flip the script and strike (black) gold? The politics of low prices can cut both ways in the United States. If oil stays too cheap, per se, US crude firms may halt production, which in turn could hurt Republicans ahead of the 2026 midterm elections in oil-rich areas. With Trump’s economic approval ratings in the dumps, Democrats may see an opening in a place where Republicans and oil are both king.

“Texas is a huge oil state,” University of Virginia politics expert J. Miles Coleman told GZERO. “But you can see how you would have some factors like that coming together to possibly create, like, a perfect storm” for Democrats to win the 2026 Senate race.

Democrats haven’t won a Senate contest in Texas since the 1980s. Incidentally, there was an oil glut back then too.