Oil prices to keep risk premium as Trump issues Iran ultimatum: experts

Oil prices fell slightly on Friday, but were still headed for hefty weekly gains for the first time in three weeks. 

Oil prices rose to a more than six-month high on Friday as geopolitical tensions simmered between the US and Iran, raising fears of supply disruptions. 

Geopolitical tensions drive risk premium

Experts believe that the risk premium on oil is likely to remain. “The heightened uncertainty that the market faces over the next two weeks suggests that oil prices are likely to continue to price in a large risk premium,” Warren Patterson, head of commodities strategy at ING Group, said in a note. 

US President Donald Trump pressured Iran to agree to a nuclear deal, stating, “We’re either going to get a deal, or it’s going to be unfortunate for them.”

“The escalation we have seen in recent days with the build-up of US military assets in the region makes it increasingly difficult to find a path to de-escalation,” Patterson added. 

At the time of writing, the price of West Texas Intermediate crude oil was at $66.24 per barrel, down 0.2%, while Brent was at $71.52 a barrel, also down 0.2%. 

WTI had hit a six-month high of $67.03 per barrel, while Brent hit $72.33, its highest level since the end of July 2025. 

Iran has been given an ultimatum by President Trump: they have 10 to 15 days to agree to a deal.

The probable consequence of their failure to comply is US military action against the country.

“The key question is then how prolonged any action would be and what the ultimate aim of the US is,” Patterson said. 

“A short and targeted campaign with limited retaliation from Iran (similar to what was seen in June 2025) is starting to look like the best-case scenario. This would likely only lead to a short-term spike in oil prices.”

More aggressive responses from Iran could be anticipated if they perceive the action's goal as regime change. 

Of greater concern for oil markets, however, would be sustained US action and a less measured Iranian retaliation, which increasingly jeopardises Iranian and wider Persian Gulf energy infrastructure.

Strait of Hormuz supply concerns

A local news agency has reported that Iran is planning a joint naval exercise with Russia. This announcement follows Iran's temporary closure of the Strait of Hormuz for its own military drills just days prior.

"Crude oil prices have edged to six-month highs as concerns over potential supply risks from the Strait of Hormuz keep markets on edge," Phillip Nova senior market analyst Priyanka Sachdeva said in a report.

Conflict in the Strait of Hormuz could severely restrict the approximately 20% of the world's oil supply that passes through it. 

This Strait is situated opposite the oil-rich Arabian Peninsula, bordering a major oil producer.

Any such disruption would likely reduce the amount of oil entering the global market and consequently lead to higher prices.

Inventory declines and abundant supply factors

Additionally, oil prices also received support from reports indicating a decline in crude oil inventories and restricted export levels among the world's leading oil producers and exporters.

US crude oil inventories decreased by just over 9 million barrels last week, a change driven by a significant week-over-week jump in exports of 851,000 barrels per day and a simultaneous drop in imports of 281,000 bpd.

Inventories of refined products also decreased, with gasoline stocks dropping by 3.21 million barrels and distillate stocks falling by 4.57 million barrels.

Despite robust refinery utilisation rates during the week, refined product stocks declined.

This decrease was driven by a rise in implied demand, which counteracted the increased refinery activity.

However, oil price gains were capped by concerns over the future trajectory of interest rates in the US, the world's largest consumer of oil.

Typically, low interest rates are considered favorable for crude oil prices.

However, the market is also weighing the effect of abundant supply, with discussions suggesting OPEC+ may resume increasing oil output starting in April.

According to JP Morgan analysts Natasha Kaneva and Lyuba Savinova, the oil surplus observed in the latter half of 2025 continued into January and "is likely to persist," as stated in a client note.