Roundtable: Oil and gas markets face greater geopolitical risk, logistical fragility than price signals suggest

Abhiram Rajendran 
Nonresident fellow 
Center for Energy Studies | Rice University | Baker Institute

Harold "Skip" York, PhD
Nonresident fellow 
Center for Energy Studies | Rice University | Baker Institute

A Mar. 4 oil‑market roundtable at Rice University’s Baker Institute painted a picture of an oil and gas system that has absorbed a major Middle East shock with outward stability even as deeper vulnerabilities build. Brent crude climbed from the mid‑$80s on the day of the roundtable to an opening well over $100/bbl when the market reopened Mar. 8. 

The key message from the discussion is that the current environment rewards greater supply chain resilience and that there is far greater medium-term geopolitical risk and logistical fragility than price signals along suggest. 

Gulf conflict triggers regional stress test

The catalyst for current market disruption is the accelerating Iran conflict and the broader Gulf security crisis it unleashed. The killing of Iran’s supreme leader and the degradation of its conventional military assets allowed the Islamic Revolutionary Guard Corps. (IRGC) to consolidate operational control over drones, missiles, and nuclear infrastructure. Despite a roughly 80% drop in missile launch rates by Mar. 3, strikes have already hit ports, storage terminals, and energy infrastructure across Kuwait, the UAE, Saudi Arabia, Oman, and Qatar. Civilian casualties and the breadth of the attacks have transformed what might have been a contained episode into a regional stress test for companies that have long treated the Gulf as a stable and reliable operating base.

Iran’s domestic risk

In Iran, the political and social picture is fractured and volatile. Some Iranians reportedly celebrated the supreme leader's dealth, while large funeral crowds and shifting sentiment as casualties mount point to a society that is divided, angry, and fearful. This unfolds against a backdrop of protest crackdowns, unverified reports of tens of thousands of dealths in a January uprising, and communication blackouts. Concerns about territorial fragmentation and alleged external support to Kurdish groups complicate forecasting. The risks emanating from Iran are likely to be nonlinear and persistent, without a clear end date.

A de facto closure of the Strait of Hormuz

A critical development for global energy markets is an “invisible” closure of the Strait of Hormuz—an operational crisis without a formal blockade. Insurers are declining coverage for transiting vessels, shipping rates have surged, and roughly 20% of global seaborne oil and a comparable portion of LNG are now constrained by legal, financial, and risk‑management factors rather than physical obstruction. Qatar’s Ras Laffan LNG complex, struck twice and forced into a force majeure declaration that has placed 88 million tonnes/year of LNG at risk, roughly equivalent to Russia’s 2021 LNG supply to Europe. Targets in Saudi Arabia (including Ras Tanura) and port and storage sites in the UAE and Oman expand the map of chokepoints and single-asset failures that matter. The system can still move barrels and molecules, but the margin for error is shrinking. 

Why the initial oil price move looked muted

While oil prices did push past $100/bbl, the initial market reaction appeared relatively subdued as crude initially increased to the $80/bbl range. That initial movement reflected three forces still shaping the market's increasing response.

Fundamentals were relatively more stable than in during Russia's 2022 invasion of Ukraine—higher inventories, more flexible refining systems, and more diversified trade patterns—allowed the system to absorb the shock without immediate dislocation.

China’s extensive stockpiling over the past 2 years also played a role. The country built substantial crude buffers, including commercial and strategic stocks. Despite the fact that roughly half of its imports still transit Hormuz, the buffers allowed Chinese buyers to slow visible spot purchases and lean on storage, muting immediate bidding wars in the physical market.

Algorithmic and systematic strategies appear to have treated the initial disruption as short-lived and containable, responding more to realized data than to tail-risk scenarios. As a result, price action lagged the full escalation of risk, with volatility and term structure adjusting incrementally rather than all at once. 

Even as prices reflect greater risk, market structure still suggests a belief that the system can reroute around disruptions through inventory draws, altered logistics, and timing adjustments rather than a firm belief that capacity losses or escalation risks are small. The danger is mistaking pricing resilience for structural resilience. The higher the price goes while the system still functions, the easier it becomes to underestimate how quickly that apparent robustness can unravel if another shock lands.

LNG shows more acute stress

Unlike crude, natural gas and LNG markets are exhibiting a more immediate reaction. Qatar's force majeure triggered a sharper response in LNG than in crude oil because gas has fewer substitutes. The supply disruption has put Europe’s path to refilling storage ahead of next winter back into question. Over time, a sustained LNG tightening raises odds that some European buyers drift toward Russian supply, softening sanctions discipline and reopening teh fault line between security and affordability. For companies with European exposure, that translates into renewed volatility in input costs, policy, and public expectations, especially for energy-intensive industries and utilities that had framed reliance on Russian molecules as permanently off the table.

Geopolitics and the Venezuelan model

Roundtable participants repeatedly referenced Venezuela as a case study in how quickly geopolitics can alter oil flows. President Trump’s military intervention put the country back at the center of US energy policy and appears to have strengthened his belief that a similar ‘model’ could apply elsewhere, including Iran, despite vastly different structural and political conditions.

Under the US approach, Venezuelan production is rising toward pre‑sanctions levels under tighter US control and barrels that once moved to China via the grey market now heading to US buyers at market prices. Participants cautioned that replicating a Venezuela‑style outcome in Iran is unlikely amid active conflict.

The shift matters because global heavy crude supply has fallen by roughly 4 million b/d over two decades. US Gulf Coast refiners retain the capability to run heavy crudes but have increasingly optimized for lighter shale barrels. Wider light–heavy price differentials may be needed to justify re‑optimizing for heavier slates. If political and contractual obstacles are resolved—including reworking production‑sharing agreements away from Chinese and Russian firms and navigating Venezuela’s highly discretionary gross‑revenue tax regime—the country could potentially add up to 1.5 million b/d by 2027–28.

The return of a risk premium

After years in which geopolitical variables seemed discounted, a durable risk premium has returned. Inexpensive drones and loitering munitions have enabled both state and non‑state actors to threaten offshore platforms, refineries, and shipping lanes, while global marine logistics—strained by the pandemic, the Russia–Ukraine war, Red Sea disruptions, and the Gulf crisis—have little slack remaining to reshuffle routes without triggering a step-change in costs. Markets may be shifting from logistics arbitrage, where higher freight compensates for rerouting, to price clearing, where higher crude prices ration demand. Even after the Gulf conflict abates, the some level of risk premium could persist and the normalized oil price could shift to near or above $70/bbl from around $60/bbl.

Market balances and forward dynamics

Narratives of a large 2026 supply glut—forecasts calling for 3-4 million b/d of oversupply, toughly twice 2020’s excess—have not materialized given stronger-than-anticipated demand and recent geopolitical disruptions. Reduced availability of sanctioned barrels, paired with temporary constraints on Hormuz traffic, could draw down surplus and tighten balances. These forces could shift Brent’s anchor into the $70s even if the Iran-related conflict stabilizes. 

Sustained prices in the $90–100/bbl range or higher, however, risk demand destruction reminiscent of 2022. US policymakers are likely to tap the Strategic Petroleum Reserve, diplomatic pressure, and messaging to manage price spikes ahead of midterm elections and the summer driving season. US shale remains a wildcard: higher prices could spur hedging and drilling, bringing additional supply within 6-9 months, setting up a potential rebalancing into 2027. Refiners, who have enjoyed storng margins, must weigh shifting product demand, evolving light-heavy differentials, and possible policy interventions as they consider configuration changes to capture any sustained change in crude availability.

FOr Asian buyers, the lesson is clear: energy security cannot be outsourced, een to a diversified portfolio. China’s accelerated stockpiling could become a model for others, while India is likely to lean harder into discounted Russian crude and seek more diverse LNG options to hedge transit risk.

The roundtable participants conveyed an oil market that is not only reacting to a short‑term shock, but navigating a potential broader reordering of trade flows, fiscal regimes, and geopolitical alignments. Venezuela’s reemergence and Middle Eastern instability are markers of a broader structural reset, not one-off anomalies.

A core message is that price stability should not be mistaken for strategic safety. The system continues to bend around shocks, but its remaining degrees of freedom are narrowing, and another escalation could force a far more abrupt and painful repricing than the last 4 years have conditioned participants to expect.