Oil's Unseen Geopolitical Premium: Why Investors Must Hedge Now

The oil market is teetering on a knife's edge, balancing surplus forecasts with geopolitical tensions that could ignite sudden price spikes. As of June 2025, the International Energy Agency (IEA) warns that global oil demand growth has slowed to 720 kb/d, while supply continues to climb. Yet beneath these numbers lies a critical blind spot: the underpriced geopolitical risk premium, a factor that could upend even the most meticulous supply-demand models. Investors must prepare for volatility by pairing aggressive long positions with strategic hedges.

The IEA's Baseline: Surpluses Loom, But Risks Are Overlooked

The IEA's June report highlights a near-term surplus of 1.8 mb/d in 2025, driven by non-OPEC+ production growth. However, this projection assumes no major supply disruptions—a risky assumption given the escalating Iran-Israel conflict.

While the market focuses on oversupply, it's the geopolitical chokepoints that could flip the script. The Strait of Hormuz, through which 25% of global oil flows, remains a flashpoint. Recent Israeli strikes on Iranian infrastructure and Iran's retaliatory threats have yet to significantly disrupt flows, but the risk of a full-blown conflict—a scenario analysts at ANZ Research argue is not priced into current oil prices—could send Brent crude soaring above $85/bbl.

ANZ's Warning: Geopolitical Risks Are the Market's “Black Swan”

ANZ Research has repeatedly flagged that markets are underestimating the Iran-Israel conflict's impact. Despite U.S. troop withdrawals from regional embassies and rising tensions, oil prices remain rangebound around $70–$74/bbl—a level that ignores the potential for supply shocks.