Why Middle East Tensions Haven't Triggered an Oil Price Spike—and What Investors Should Do Now

The Israel-Iran conflict has escalated in June 2025, with air strikes, infrastructure damage, and threats to close the Strait of Hormuz—a chokepoint for 25% of global oil supply. Yet, despite these geopolitical fireworks, oil prices have remained stubbornly subdued. Brent crude, for instance, briefly spiked to $74/barrel in mid-June but has since settled below $70, while U.S. crude trades at around $65. The market's muted reaction raises a critical question: Why hasn't the Middle East's volatility translated into a sustained oil price surge? And what does this mean for investors?

The answer lies in the interplay of geopolitical risk assessment and algorithmic market dynamics, which are suppressing price spikes even as tensions rise. Let's unpack the factors at work—and how to position your portfolio accordingly.

The Four Pillars Keeping Oil Prices Grounded

1. Oversupply and OPEC+ Spare Capacity

The global oil market is swimming in supply. OPEC+ production rose by 330,000 barrels/day (b/d) in May 2025, pushing total output to 105 million b/d. Even as Iran and Israel trade blows, OPEC+ has enough spare capacity (estimated at ~4 million b/d) to offset disruptions. Meanwhile, U.S. shale producers, which have become leaner and faster post-pandemic, are ramping up output. Non-OPEC+ supply is projected to grow by 1.8 million b/d in 2025 alone.

This oversupply dynamic has created a buffer against geopolitical shocks. Traders know that even if a few million barrels are temporarily disrupted, the market can absorb the loss. The result? A “geopolitical premium” that's narrow and fleeting.

2. Algorithmic Trading and Data-Driven Fundamentals

Modern markets are less reactive to news headlines and more attuned to underlying data. Algorithms now account for 80%+ of oil-related trading volume, and they're programmed to prioritize metrics like inventory levels, demand trends, and OPEC+ policy moves over geopolitical noise.

Take the Strait of Hormuz: While its closure would be catastrophic, traders are betting on its continued flow because a shutdown would likely trigger a coordinated global response (e.g., tapping strategic reserves, rerouting shipments). The U.S. SPR, though depleted to 200 million barrels below 2021 levels, still acts as a psychological backstop.

3. Demand Weakness Anchoring Prices

Even as China and the U.S. cautiously reopen trade talks, global oil demand growth remains sluggish. EV adoption, economic headwinds, and a shift to remote work have dampened gasoline demand, while jet fuel is still below pre-pandemic levels.

Enverus Intelligence notes that prices are being held back by weaker demand fundamentals, not just supply abundance. This explains why crude prices are 14.5% lower year-on-year despite June's geopolitical spike.

4. U.S. Shale's Resilience

Shale producers have evolved into “price setters,” not price takers. Unlike in 2014–2016, they now prioritize returns over volume and can ramp up production swiftly when prices flirt with $70+/bbl. This responsiveness caps upward momentum.

Why the Strait of Hormuz Still Matters—and How to Protect Your Portfolio

While the market is right to discount transient geopolitical risks, the Strait of Hormuz is a wildcard. A sustained closure would trigger a supply shock, pushing prices to $100+/bbl. Investors must balance prudent risk management with the current reality of subdued prices.

Investment Recommendations

1. Energy Equities with Hedging Exposure:
2. Firms like ExxonMobil (XOM) and Chevron (CVX) have robust hedges and diversified production portfolios.

3. Consider CNOOC (CEO) or Petrobras (PBR) for exposure to OPEC+ dynamics, though geopolitical risks in their home regions add volatility.

4. Short-Term Volatility Instruments:

5. Use oil options (e.g., call spreads) to profit from any spike triggered by Strait disruptions.

6. The VelocityShares 3x Long Crude ETN (UOIL) offers leveraged exposure to short-term price jumps.

7. Avoid Overweighting in Unhedged Producers:

8. Companies without hedges or exposure to Middle East supply chains (e.g., Marathon Petroleum (MPC)) face downside if prices collapse further.

9. Monitor Key Metrics:

10. Track Strait of Hormuz tanker traffic via services like S&P Global Platts.
11. Watch OPEC+ compliance rates and U.S. SPR releases for signs of supply shifts.

Conclusion: Navigating the Geopolitical Oil Minefield

The Middle East's volatility isn't irrelevant—it's a critical risk to monitor—but it's no longer the dominant driver of oil prices. Algorithmic trading, shale's resilience, and oversupply have created a new equilibrium. Investors should treat geopolitical events as transient catalysts rather than foundational trends.

Position defensively: Own hedged energy equities for steady returns, use volatility tools to capitalize on fear-driven spikes, and stay alert to the Strait of Hormuz wildcard. The oil market's calm could shatter abruptly, but for now, the fundamentals remain in control.