Oil Spikes, Risk Premium Builds: What Matters for Investors

Lale Akoner, global market analyst at eToro says: “Tensions in the Middle East have escalated in recent days, lifting oil prices and stoking concerns about geopolitical risk across markets. Brent crude surged more than 13% intraday on June 13, 2025, its biggest single day move since Russia’s 2022 invasion of Ukraine, before settling 7% higher.

“Despite the spike, the oil market wasn’t structurally tight heading into this event. Global demand remained firm, and OPEC+ had been limiting supply, but spare capacity was ample. Iran, for instance, produces around 3 million barrels per day (~4% of global output), and OPEC holds roughly 4 million barrels per day in spare capacity, mostly in Saudi Arabia. That buffer significantly reduces the risk of a sustained oil price shock from isolated disruptions.

“The Strait of Hormuz is a critical chokepoint, carrying roughly 30% of global seaborne oil trade. However, a full closure, while often threatened, remains unlikely. Iran’s own exports depend on this passage, and any attempt to block it would risk alienating key buyers like China and destabilising regional trade. Historically, the strait has never been fully blocked, even in times of heightened conflict.”

Historical context

“Oil prices often react sharply to geopolitical events, but history shows that such price moves are typically short-lived. Indeed, the 1973 oil embargo triggered a 300% surge in oil prices and a deep recession. However, market behaviour in June 2025 mirrors more recent episodes in 1990 and 2022. In all three episodes, oil spiked on broader conflict fears and increased risk premium, as investors rotated into safe havens like gold.

“Today, faster information flow, more balanced supply chains, and better-informed investors allow markets to assess risk and reprice more efficiently. In contrast, investors in 1973 and 1990 were caught off-guard by embargoes and invasions, and the macro backdrop – high inflation in the 1970s and recession risk in the early 1990s – amplified the fallout.

“In today’s environment of solid growth and tight labour markets, cost shocks like rising oil prices can contribute to inflation persistence. Central banks may respond by delaying rate cuts, but a full policy reversal is unlikely unless oil prices remain elevated for an extended period or inflation expectations become unanchored. For now, policymakers are expected to look through the volatility.”