Oil prices are poised for their biggest monthly gains in years as escalating tensions in the Middle East — particularly over the potential for a U.S. military strike on Iran — have injected a significant geopolitical risk premium into the energy market, analysts and traders say.
Despite a slight pullback on Friday, Brent crude futures were trading around $70.50 a barrel after posting multi-month highs earlier in the week. U.S. West Texas Intermediate (WTI) crude also retreated modestly after strong gains, but both benchmarks remain on track to record their first monthly increases in six months. Brent is up more than 16% and WTI around 14% for January — their largest monthly surges in years.
The recent rally has been driven largely by geopolitical uncertainty. U.S. President Donald Trump has warned Iran to negotiate or face possible military action, prompting concerns that any conflict could disrupt crude exports or threaten shipping through the Strait of Hormuz, a key artery for global oil flows. Brent and WTI were recently trading at their highest levels since late 2025 on these concerns.
“There’s an added risk premium being built into prices as traders factor in possible disruptions to Iranian exports or flows through key routes,” analysts said. Market intelligence from Citi suggests that while the U.S. and allied partners may take restrained actions in the short term, risks remain elevated, keeping prices buoyant.
In addition to Middle East tensions, supply fundamentals continue to influence the market. Production disruptions earlier in January from Kazakhstan’s Tengiz oilfield and other global disruptions have pressured supply, supporting prices amid strong geopolitical fears.
Looking ahead, oil markets are expected to remain sensitive to further geopolitical developments, especially if diplomatic negotiations fail or if any military action directly impacts crude production or transit routes.
