Rising unrest in Iran is pushing oil prices higher with crude hitting a two-month high as Middle East tensions transcend the impact of recent events in Venezuela.
More than 2,000 people have reportedly been killed as nationwide protests challenging the Iranian regime continue, amid an almost week-long internet blackout across the country.
US President Donald Trump urged Iranians to continue demonstrating against the regime of Supreme Leader Ayatollah Ali Khamenei. He also said all meetings with Iranian officials had been cancelled and that help was on its way, raising the prospect of US intervention.
ANZ senior commodity strategist Daniel Hynes said any disruption to Iran’s oil industry threatens up to 3.5 million barrels per day of supply, of which nearly 2 million barrels per day reach the international market.
“This comes after the US imposed a 25 per cent tariff on countries doing business with Iran. This compounded already bullish sentiment amid other supply disruptions. A combination of bad weather, drone attacks and maintenance is threatening exports from Kazakhstan. Loadings at the Caspian Pipeline Consortium terminal have fallen by almost a half to about 900kb/d.”
He noted the differing reaction in oil markets over the past week to events in Iran and Venezuela.
Oil prices fell on January 6 after Trump indicated an influx of oil to the market, suggesting tens of millions of barrels of Venezuelan crude could be seized.
“The prospect of the US revitalising Venezuela’s oil industry did invoke concerns of more supply on the market but as things have progressed, they have realised how difficult that will be … certainly in the shorter term, the prospect of any gains are going to be relatively limited,” Hynes said on ANZ’s 5in5 podcast on 14 January.
“Trump bringing in the oil executives into the White House didn’t really elicit the enthusiasm for investment into the country that maybe he was hoping [for], but certainly the prospects of that political instability just weighing on output has ultimately been where the market is seeing things now in regards to Venezuela.”
Hynes believes events over the past week have escalated to the point where the oil market is becoming increasingly concerned about what this could mean for supply.
“The stakes are a lot higher in Iran’s case,” he said. “It exports nearly two million barrels a day of oil to the market as opposed to the half a million barrels that Venezuela exports .. The potential for even broader implications across the Middle East, as tensions escalate even further.”
While there is genuine concern, he noted the prospect of actual disruptions remains relatively low.
“We’ve heard of oil workers potentially joining the protests and going on strike, which could obviously impact exports to the global market … but I think the likelihood of US intervention does represent an even greater risk.
“That in combination with Venezuela has certainly brought those geopolitical risks back into focus. While we and the broader market are not really expecting a significant hit to supply, the risks have escalated and are worthy of a little premium on oil prices at the moment.”
US actions in Venezuela reflect a broader geopolitical realignment, according to Schroders, and are revealing about the evolving geopolitics of energy in particular.
“Energy access, sanctions policy and resource control are being deployed as instruments of international influence in many parts of the world.”
The firm says that from a geopolitical perspective, oil remains powerful enough, at least in part, to motivate military action.
“From an investment perspective, however, Venezuela concentrates precisely the risks investors have been working to reduce: high costs, long payback periods, political exposure and uncertain long-term demand.
“That demand uncertainty is structural. Energy security is increasingly defined by electrification, grid resilience and control over technologies and critical minerals, rather than simply securing incremental oil and gas supply. Since Russia’s invasion of Ukraine, reducing dependence on imported oil and gas, including LNG, has become an explicit policy objective across Europe and parts of Asia.”
Schroders said Venezuela therefore illustrates the growing gap between geopolitical relevance and investment viability in the energy transition.
“For investors, the lesson is not that oil no longer matters. Oil can still shape foreign policy and move markets. Rather, political urgency does not resolve economic reality. In a world of capital discipline, uneven transitions and evolving definitions of energy security, assets that rely on geopolitical intervention to become competitive are precisely those most at risk of stranding.”
