Market Resilience Defies Middle East Turmoil

De-escalation and Calm Risk Assessment

Recent weeks have seen limited military escalation between Iran and Israel, including retaliatory attacks, which initially triggered concern in markets. However, the market’s reaction hasn’t reflected this alarm with the same intensity that the nature of the tensions might suggest. This is primarily due to the calming messages and diplomatic rhetoric that followed these incidents. Statements from key international players, including the United States, have indicated a clear desire to contain the conflict and prevent it from spiraling into a broader regional war.

For instance, the notable decline in oil prices on June 23, 2025, coincided with reports of intensive diplomatic efforts and potential agreements for de-escalation.

Traders and analysts are assessing the risks more calmly. There’s a prevailing belief that Iran, despite its strong rhetoric, is unlikely to fully close the Strait of Hormuz or widely target oil shipments. This assessment is based on the understanding that such an action would severely harm Iran’s own economic interests, as it relies on the Strait to export its own oil (around 1.5 million bpd), a vital source of its revenue.

Strait closure is viewed as an “economic suicide” option for any nation dependent on it. Consequently, limited responses that do not directly target major energy flows quickly erode the “risk premium” typically priced into oil.

Ample Global Supply and Robust Production

Underlying supply and demand dynamics play a crucial role in price stability, specifically the current abundance of supply:

Record US Oil Production: The United States continues to solidify its position as the world’s largest crude oil producer, bolstered by the shale oil revolution. US crude oil production averaged approximately 13.2 million bpd in 2024 and is projected to rise to about 13.7 million bpd in 2025. This immense output provides significant flexibility in global supplies and lessens reliance on Middle Eastern sources, even if the US remains a net importer for some of its needs.

Rising Global Inventories: Recent reports from agencies like the International Energy Agency (IEA) and the US Energy Information Administration (EIA) indicate that global oil inventories have risen for the third consecutive month in April and May 2025. This increase, particularly evident in non-OECD countries, suggests that supply currently outweighs demand, providing an additional buffer against potential supply shocks.

OPEC+ Policies: Despite previous voluntary production cuts by the OPEC+ group to support prices, there are indications that the alliance has begun to gradually increase production or at least is not inclined towards further significant cuts under current conditions, contributing to stable supply.

Weak Global Demand Growth and Energy Transitions

The demand side cannot be overlooked in explaining price behavior:

Global Economic Slowdown: The global economy continues to face headwinds, negatively impacting energy demand growth. Weak economic growth data from key regions like Europe and China, coupled with persistent inflationary pressures and tight monetary policies (high interest rates) from major central banks, are curbing industrial and commercial activity, thereby reducing oil and gas consumption.

Increasing LNG Supply: For gas prices, while global natural gas demand growth is expected to slow to under 2% in 2025, Liquefied Natural Gas (LNG) supply growth is accelerating significantly, projected to reach 5% (equivalent to 27 billion cubic meters) in 2025. This acceleration is due to the commissioning of several large LNG projects, particularly in North America (which will account for 85% of the increase in global LNG supply in 2025). This anticipated surplus in LNG supply reduces the market’s sensitivity to potential disruptions in the Middle East.

Impact of the Green Economy and Energy Efficiency: In the medium to long term, efforts towards a green economy and clean energy transitions are increasingly curbing the growth of fossil fuel demand.

Rising investments in renewable energy and improved energy efficiency across various sectors (especially in transportation with the rapid growth of electric vehicle sales) are reducing marginal oil demand.

Some reports estimate that these transitions could save the equivalent of several million barrels per day of future oil demand compared to previous trajectories, thus limiting upward price pressure.

A Resilient Market Amidst Risks

The stability or decline of oil and gas prices amidst Middle East tensions does not imply underestimation of these tensions’ gravity. Rather, this behavior reflects the market’s ability to assess risks more accurately, considering the absence of direct and targeted escalation to energy flows, ample global oil and gas supply thanks to robust production and high inventories, and weak demand growth due to the global economic slowdown and the shift towards more efficient energy sources.

These combined factors contribute to mitigating alarm and preventing a major “risk premium,” granting the market greater flexibility in navigating current geopolitical challenges.