Any climb higher brings downside risks back into focus and any form of resolution in the region could also cause a rapid correction in prices. The major player to watch is China. We know that throughout 2025, they’ve been building up strategic reserves, likely in anticipation of potential U.S. sanctions, not necessarily military action. If they decide to sit tight and wait for prices to correct downward, it’s a reasonable strategy, but also a risky one. In two weeks, $75 might look like a bargain. It doesn't look like tensions will ease anytime soon between Iran and Israel.
Could anything trigger the $10 geopolitical risk premium to deflate?
The market hasn’t gone as long as many people expected. That tells you something about the overall sentiment, concerned about upside risk, but still wary. Any push above $85 a barrel and they start looking down. A spike north of $120 is plausible if we see real escalation and closure of the Strait of Hormuz; that would be devastating for the global economy. Many are saying it’s unlikely Iran will make that move, but when a country is running out of options, the “last resort” can start to feel very close. That’s why traders are keeping their eyes northward rather than southward.
What can China do if Iranian tankers are no longer available?
China has been hedging its economic exposure - waiting it out and relying on its vast reserves, and hoping the crisis cools off quickly. We may have also already hit peak oil demand in China. Consumption is softening and we’ve seen less Chinese activity in oil markets this month. Meanwhile, higher oil prices are great news for Russia. A few weeks ago, when prices were closer to $60, it was under serious pressure. Now, Russia is in a stronger position, and nobody’s really watching them.