Overcoming geopolitical volatility in oil markets

This content was originally published by TABBForum.

Geopolitical events can wreak havoc on markets and create tremendous volatility, particularly in the energy markets. That’s why an effective risk management plan can make or break a firm or an investment strategy. Technology plays a role in mitigating risk during those volatile times.

The tensions between Iran and Israel in June 2025 had a significant impact on global oil markets. This was not unique to the recent hostilities. Conversely, the oil industry has always been one major conflict away from a price spike and increased volatility. Recent research from EY Parthenon showed that, since 2017, global geopolitical and economic uncertainty has slashed more than $300bn off the profits of global businesses.

Indeed, traders and producers increasingly view geopolitics as the most pressing supply chain risk. A fifth of the world’s oil flows through choke points like the Strait of Hormuz, where conflict can easily cause disruption. For certain countries, such as China, the concentration is even higher, with 50% of its oil imports transiting the waterway between Iran and Oman. With supply chains more global than ever, a conflict, regulation change, or diplomatic tension in one region can disrupt production and logistics worldwide. Long-term outcomes, beyond higher volatility for a period, become harder to predict.

Impact of recent market disruptions

During the 12-day conflict in the Middle East, the prices of Brent Crude and West Texas Intermediate crude initially surged but quickly fell after the ceasefire. As the Strait of Hormuz remained open, geopolitical risk premiums faded, and the market realized the conflict would not significantly expand.

Consider other conflicts, such as the ongoing Russia-Ukraine war. The February 2022 invasion caused Brent Crude to spike over 50% to more than $130 per barrel due to fears of a supply shock. As the conflict continued, prices began to fluctuate, and the market adjusted to the reality of ongoing sanctions and the reconfiguration of global oil supply routes. Traders realized that Russia’s oil exports — although impacted by sanctions — were still flowing, although through alternative routes to non-Western markets, mitigating the immediate supply shock. By late 2022, prices returned to below $100 a barrel, reflecting a return to more stable, albeit still volatile, market conditions.

Regardless of prices, increased sanctions since the onset of the conflict added to the complexity for oil producers and traders. Firms with long-term supply agreements for products from Russia, Venezuela, and Iran face increased operational and compliance risks, contending with challenges like finding vessels to charter and insure without violating sanctions.

Meanwhile, while not violent, US trade tariffs are exacerbating risk in energy supply chains. The uncertainty over tariffs creates market instability, especially for businesses relying on imported raw materials or energy. This not only disrupts pricing structures but also leads to prolonged periods of uncertainty as companies wait for regulatory clarity.

Building strong risk management strategies: what’s worth considering

As we’ve seen over the past few years, disruptions caused by conflicts or other geopolitical tensions are likely to recur. Firms that trade or operate in the commodities markets must be ready to deal with flashpoints when they occur, and be prepared to mitigate the damage they cause.

Many commodities-focused firms tend to have strong risk management strategies in place, but there are a few critical areas worth considering.

First, risk policies should encompass more than just the financial dimension. While tools such as Value at Risk (VaR), Mark-to-Market (MTM), stress testing, trade limits, and credit limits are standard for measuring financial risk, today’s world of brittle supply chains and increasingly frequent disruptions calls for a deeper focus on risks affecting day-to-day operations. Firms need to identify critical components within the supply chain and counterparties that, if interrupted, would significantly impact operations.

Second, just establishing these policies isn’t enough. Firms must run daily or even intraday reporting for the most sensitive elements of their operations. Operating a regular reporting schedule can help align performance consistently with risk policies and ensure that any current or potential breaches are flagged early, allowing for timely corrective action and maintaining continued supply.

Third, Third, teams should complement risk management policies and intraday reporting with ‘what if’ simulations to understand the potential impacts of different scenarios and develop actionable mitigation plans. These plans should include periodic training with managers and leadership, so that risk mitigation plans can be executed swiftly during periods of volatility.

Finally, since global energy markets remain in flux, firms should periodically review and adjust these risk policies to stay successful. Importantly, firms must be willing to act immediately when a risk is identified. A VaR limit is of little use if no action is taken when it is breached, yet firms sometimes mistakenly rely on the hope that the situation will correct itself.

How technology is changing the game

When dislocations occur, market participants will likely face increased costs. However, those who can react quickly will be well placed to avoid long-term disruption and retain customers. If they can provide the product when their competition cannot, they will increase market share. In contrast, those who delay may lose access to critical commodities, be forced to shut down key business processes, and face the possibility of going out of business.

With disruptions seemingly the new norm, transparency into the components of one’s operation and flexibility in action are paramount. Firms need to use technology that can provide a clear, real-time view of operations, allowing rapid risk assessment and swift action when necessary. Where possible, the many steps outlined earlier should be automated, minimizing costs and giving firms the bandwidth to manage challenges proactively.

Ultimately, in today’s volatile environment, risk management strategies can no longer stand on their own, unless accompanied by the right technology—sometimes just to keep up with the frequency of disruptions. After all, managing risk is about figuring out what could go wrong and having a plan to stop it before it hits. The number and unpredictability of different variables in today’s oil markets demands using the latest digital tools and analytics to assess, adapt, and respond. For businesses operating globally, supply chain risks cannot be ignored.