Energy Geopolitics: How Iran Conflicts Affect Global Oil Markets

Abstract

This paper offers a comprehensive and analytical analysis of how the behavior of the global oil markets and Iranian geopolitical instability are linked, from an interdisciplinary perspective. Based on the principles of energy economics, international relations theory, and empirical analysis of price-shocks between 1979 and 2025, we conclude that Iran's role in the global petroleum system is structurally different and increases its likelihood of contributing much more than its current output of petroleum to petroleum system shocks. The Islamic Republic is also located on the thronged Strait of Hormuz through which some 20 percent of oil shipped around the world passes every day; it holds the world's fourth-largest proven crude oil reserves; and plays a key role in the deliberations of the OPEC+ cartel. Iranian conflict episodes pass through four main channels to oil market flows supply disruptions, Hormuz chokepoint, sanctions-related reductions, and speculative risk premia in futures markets and these effects are analyzed. Historical case studies such as the Islamic Revolution (1979), the Iran-Iraq War (1980-88), the introduction of the maximum pressure sanctions by the United States in 2018, and the assassination of Soleimani in January 2020 are used to track and capture these mechanisms. We also deep-dive into OPEC+'s compensatory ability, strategic petroleum reserves and the increasing complexity of an energy transition. We have established that Iran related risk events cause statistically significant, and sometimes highly durable, price increases and that there are currently levels of price protection which are not sufficient enough against a severe scenario of closure in the Hormuz.