How Geopolitical Conflict Moves Oil and Gas Prices

Conflict moves oil prices through two routes: the fear of losing supply, which reaches futures prices within hours, and the actual loss of barrels, which lasts as long as the loss does. Natural gas follows the same logic, but because it travels by pipeline or as liquefied gas on ships, its prices can differ sharply between the US, Europe and Asia.

Key takeaways

Threats lift prices before any barrel is lost and often reverse: Brent rose 11.7% after the September 2019 Abqaiq attack and was back below its pre-attack level by September 30.
Sustained moves need a physical loss: in 2026 Brent spot rose 77.6% between February 27 and March 31 after traffic through the Strait of Hormuz largely stopped.
Spare capacity, emergency stocks and bypass pipelines limit how much of a loss reaches the price. The IEA's 2026 release of 400 million barrels equals about 20 days of the strait's pre-conflict flow.
Gas is regional: by late April 2026 European and Asian benchmarks were up 35% and 51% from pre-closure levels, while Henry Hub was down 9%.
Crude makes up about half of the US pump price, so a crude spike reaches gasoline only partly unless refining margins also widen, as they did in 2026.

How a risk premium forms

A risk premium is the extra amount traders pay because supply might be disrupted, on top of what current supply and demand justify. It cannot be observed directly; analysts infer it when prices jump on news that has not changed physical flows.

The EIA documented this in an analysis of oil price reactions to supply risk. A US military operation in Iraq in January 2020 did not affect physical supply, yet the market reacted within three to five hours. Brent's 3.4% rise on January 2 was larger than 95% of daily changes over the previous 29 years, a period in which Brent moved less than 2% on 74% of trading days.

The Geopolitical Risk index, built by Federal Reserve Board economists Dario Caldara and Matteo Iacoviello, counts the share of articles about adverse geopolitical events in leading US, UK and Canadian newspapers. It measures attention, not supply.

What the futures curve shows

When near-dated futures prices sit above later ones, the curve is in backwardation, which the EIA reads as tightness in the very short term. In early April 2026 the EIA reported that Dated Brent, the price of physical North Sea cargoes, traded more than $25 per barrel above the front-month futures contract, as buyers scrambled to replace cargoes that normally cross the Strait of Hormuz. A steep backwardation points to a shortage now; a rise across the whole curve with little backwardation is more consistent with fear about later supply.

Chokepoints that carry the risk

A chokepoint is a narrow passage that a large share of seaborne oil must cross. The EIA tracks flows in its World Oil Transit Chokepoints analysis.

Chokepoint	2024 oil flow (million barrels per day)	Why it matters
Strait of Malacca	22.5	Main route between the Indian and Pacific oceans
Strait of Hormuz	20.7	Persian Gulf exports; few bypass routes
Suez Canal and SUMED pipeline	4.8	Red Sea-to-Mediterranean link
Bab el-Mandeb	4.1	Southern entrance to the Red Sea; 9.3 in 2023, before attacks cut traffic
Turkish Straits	3.6	Black Sea exports, including Russian and Kazakh oil

Hormuz stands out because the alternatives are thin. A June 2025 EIA review estimated that only about 2.6 million barrels per day of Saudi and Emirati pipeline capacity could bypass the strait, against flows of about 20 million. About one-fifth of global LNG trade, mostly from Qatar, also passes through it.

The Red Sea is the opposite case, because ships can go around. From 2023 to 2024, Bab el-Mandeb flows fell 55.9% (9.3 to 4.1 million barrels per day) while flows around the Cape of Good Hope rose 50.0% (6.2 to 9.3). The oil arrived later and at higher shipping cost, and Brent ended 2024 4.0% lower. Many forces moved prices that year, but the attacks did not create a lasting shortage.

Five episodes, five outcomes

Brent spot prices from the Federal Reserve Bank of St. Louis series DCOILBRENTEU show the contrast; percentages are computed from daily values.

Episode	Brent spot (dollars per barrel)	Change	What drove the outcome
1990 Kuwait invasion	19.23 (Jul 31) to 41.15 (Oct 11); 21.10 on Jan 17, 1991	+114%, then -48.7%	Iraqi and Kuwaiti output lost; prices eased before and during the war
2019 Abqaiq attack	61.25 (Sep 13) to 68.42 (Sep 16); 60.99 on Sep 30	+11.7%, then fully reversed	Quick Saudi restoration and spare capacity
2022 Russia-Ukraine	99.29 (Feb 23) to 133.18 (Mar 8); 82.82 on Dec 30	+34.1%, then -37.8%	Risk to Russian exports; the spike reversed within the year
2023-24 Red Sea attacks	77.69 (Dec 29, 2023) to 74.58 (Dec 31, 2024)	-4.0% over the year	Oil rerouted rather than lost
2026 Hormuz closure	71.32 (Feb 27) to 126.69 (Mar 31)	+77.6%	Flows through the strait largely stopped

What the episodes show

In 1990 the price fell in two steps: 26.4% from October 11 to $30.28 on January 16, 1991, then 30.3% in one day to $21.10 on January 17, as the air campaign began and the US prepared its share of an IEA stock release. The Department of Energy says the quick decision to release stocks "helped calm the global oil market." It prepared 33.75 million barrels but sold 17.3 million, first delivered on February 5, so the fall came before any emergency barrels arrived.

In 2019 the attack cut Abqaiq's processing to 2 million barrels per day from about 7 million of capacity, yet Saudi Aramco expected full restoration by the end of September, and OPEC spare capacity of 2.2 million barrels per day, nearly all Saudi, made that believable.

In 2022 Brent peaked on March 8 and ended the year 16.6% below its February 23 level, so the spike reversed even though the war continued.

The 2026 Hormuz crisis

The 2026 episode is the first modern case in which the Strait of Hormuz largely closed. According to the IEA, the conflict that began on February 28, 2026 cut crude and product exports through the strait to less than 10% of pre-conflict levels, with limited options to bypass it.

The EIA's first-quarter review reports Brent futures rising from $61 to $118, the largest inflation-adjusted quarterly rise in data back to 1988. WTI, the US benchmark, rose less: the Brent-WTI spread widened from about $4 to $25 per barrel on March 31, as strong US inventories and planned releases from the Strategic Petroleum Reserve held WTI back.

Prices then followed the news. Brent spot peaked at $138.21 on April 7 and fell to $68.53 on July 2, after a June 17 memorandum of understanding increased flows through the strait. The EIA's third-quarter review links the renewed rise to attacks on crude tankers and on pumping stations of Saudi Arabia's East-West pipeline, a bypass route. As of October 14, 2026, Brent spot was $126.55 (FRED).

What cushions a supply shock

Spare capacity and bypass routes. Extra output or pipelines around a blocked strait offset part of the loss. Spare capacity behind the blockage reaches buyers only through those pipelines, a key difference between 2026 and 2019.
Emergency stocks. IEA governments hold more than 1.2 billion barrels of emergency stocks, plus 600 million barrels of industry stocks held under government obligation. On March 11, 2026 they agreed to release 400 million barrels, the sixth collective action after 1991, 2005, 2011 and two in 2022. The arithmetic: 400 million barrels divided by roughly 20 million barrels per day of normal strait flows is 20 days, so stocks buy time but cannot replace a long closure.
Sanctions and price caps. These restrict what a supplier earns without necessarily removing its barrels. The EU's cap on Russian crude is designed to sit 15% below the average Urals price over the previous 22 weeks. The European Commission set it at $44.10 per barrel from February 1, 2026, down from $47.60 and from the original $60. In July 2026 the Council suspended the automatic adjustment from July 24, 2026 to July 14, 2027, so the cap stays at $44.10 unless the Council decides to change it.

Why gas prices split by region

Crude moves easily between regions; natural gas does not. Pipelines tie gas to a region, and liquefied natural gas (LNG) needs liquefaction plants and specialized ships. The main benchmarks are Henry Hub in the US, TTF in Europe and JKM in East Asia.

In August 2022, Russian pipeline exports to Europe fell to their lowest level in 40 years, and the EIA reported record gas futures in Europe and Asia. The Henry Hub average for 2022, $6.45 per million British thermal units (MMBtu), was the highest since 2008 but far below European prices, partly because an outage at the Freeport LNG terminal limited US exports.

In 2026 the EIA's April review of LNG markets found that the closure affected more than 10 billion cubic feet per day of LNG supply, about 20% of global trade and mostly from Qatar. In the week ending April 24, TTF was $14.80 per MMBtu, 35% above its pre-closure level, and JKM was $16.02, up 51%. Henry Hub fell 9% from February 28, with ample US storage and little room to raise exports quickly.

From crude to the gas pump

The EIA's breakdown of a gallon of regular gasoline in 2025 attributes 51.4% to crude oil, 14.3% to refining costs and profits, 17.8% to distribution and marketing, and 16.6% to taxes, on an average price of $3.10 per gallon. If the other parts stay the same, a crude shock moves the pump price by roughly half the crude change in percentage terms.

Illustrative example: a barrel holds 42 gallons, so each $10 per barrel adds about 24 cents to the crude cost of a gallon ($10 / 42 = $0.238). The 2026 rise from $71.32 to $126.69, a gain of $55.37, works out to about $1.32 per gallon of crude cost ($55.37 / 42). Pump prices rarely match this arithmetic, because refining margins, regional supply and seasonal demand also move, as they did in 2026.

The EIA reported US retail gasoline at $3.99 and diesel at $5.40 per gallon on March 30. In the second quarter, gasoline refining margins averaged 60% above a year earlier, while distillate and jet fuel margins more than doubled. Energy prices also feed into inflation readings, which are a separate topic.

Frequently asked questions

Why did the gap between Brent and WTI widen in 2026?

Brent prices the seaborne oil Asia and Europe were scrambling to replace, while the US had strong inventories and planned reserve releases. The EIA reports that the spread started 2026 near $4 per barrel, averaged $11 in March and reached $25 on March 31.

How exposed is the United States to Persian Gulf oil?

The EIA found that in 2024 the US imported about 0.5 million barrels per day of crude and condensate from Persian Gulf countries through Hormuz. That was about 7% of US crude and condensate imports and 2% of US petroleum liquids consumption. US prices still rise because oil is priced globally.

Is the Geopolitical Risk index a trading signal?

No. Caldara and Iacoviello describe it in the American Economic Review (2022) as a news-based measure of adverse geopolitical events and risks. It can spike with no change in oil supply, so it works as context rather than a signal.

Why did diesel and jet fuel rise more than gasoline in 2026?

The EIA ties it to disrupted supplies through the Strait of Hormuz, which tightened global markets for refined products, and to a substantial rise in US jet fuel exports to Europe in the second quarter.

Does the Russian price cap set the market price of oil?

No. The cap limits the price at which EU operators may provide maritime transport and related services for Russian crude. It does not set what other buyers pay. As of October 17, 2026 it is $44.10 per barrel. Under the July 2026 regulation, the Commission must report a recalculated average by January 15, 2027, and the Council may then amend the cap.

Checklist for reading oil news

Ask whether barrels are physically lost, delayed or only threatened. Threats fade faster than losses.
Check which chokepoint or facility is involved and whether bypass routes exist.
Look at the futures curve and at the gap between physical and futures prices. A steep backwardation signals a shortage now.
Consider the cushions: spare capacity outside the affected area, emergency stock releases and changes to sanctions.
For gas, identify the region. Henry Hub, TTF and JKM can move in different directions.
Treat any price forecast, including official ones, as a conditional scenario rather than a prediction.