Hamid Mollazadeh
As the oil market moves toward 2026, the story of 2025 stands out as one of the most counterintuitive chapters in recent energy history. Brent crude began the year trading around $74 per barrel, supported by persistent geopolitical tensions, sanctions, and supply-side risks. Yet by December, prices had slid to an average of $60–61 per barrel, marking a decline of nearly 20 percent over the year.
This downturn unfolded despite wars, shipping disruptions, political shocks, and repeated fears of supply outages—conditions that, in previous cycles, would almost certainly have driven prices sharply higher. The central question of 2025 is therefore not what happened to oil prices, but why the market refused to stay elevated in a year so full of risks.
Resilient Market
The defining feature of the 2025 oil market was its growing resistance to geopolitical shocks. Over the past decade, traders, refiners and governments have been forced to adapt to near-constant crises—from sanctions and regional wars to trade conflicts. By 2025, this adaptation had fundamentally altered market behavior. Risk was no longer priced automatically or permanently; it was priced conditionally, briefly and often reversed.
At the macro level, the market’s attention shifted decisively from geopolitics to demand fragility. The return of Donald Trump to the White House early in the year reignited tariff politics and trade uncertainty, particularly toward China and Europe. While oil itself was not directly targeted, the broader economic consequences were unmistakable. Tariff threats dampened global trade expectations, weakened manufacturing outlooks and revived fears of slower economic growth.
China’s oil demand growth, long the backbone of global consumption expansion, underperformed expectations. Europe hovered near stagnation for much of the year, while the US economy showed clear signs of fatigue under tight monetary conditions. Against this backdrop, the oil market increasingly concluded that even severe geopolitical shocks could not compensate for a structurally weaker demand outlook.
Fleeting Spikes
Geopolitical tension did not disappear in 2025; it intensified. Yet again and again, the market demonstrated that fear alone was no longer enough.
The most dramatic episode occurred on June 13, when reports of nighttime explosions in Tehran and direct Israeli military action against Iran sent shockwaves through global markets. Traders immediately focused on the Strait of Hormuz, the world’s most critical oil chokepoint. Brent surged by nearly 12 percent, briefly returning to the $74 level as fears of regional escalation mounted.
But the rally faded almost as quickly as it emerged. Iranian exports continued to flow, shipping lanes remained open and no sustained physical disruption materialized. Within days, prices retreated. The message was clear: geopolitical risks without supply loss no longer command a lasting premium.
A similar pattern played out elsewhere. Russia’s war with Ukraine continued to target energy infrastructure, from pipelines to export terminals. Yet global oil flows adjusted. Russian crude, heavily discounted, kept moving—particularly into Asian markets—softening the impact of sanctions and preventing meaningful supply shortages.
In the Middle East, the Red Sea once again became a flashpoint. Houthi attacks on shipping, including incidents involving oil tankers linked to Israel, raised insurance costs and disrupted logistics. However, alternative routes and higher freight costs proved manageable. The market treated these events as logistical complications rather than existential supply threats.
Even Venezuela, once a source of acute market anxiety, failed to move prices meaningfully when tankers were detained or exports faced renewed uncertainty. In a market already concerned about excess supply, these disruptions simply did not carry the weight they once did.
Shadow of Oversupply
OPEC+ remained an important stabilizing force in 2025, but its influence was increasingly defensive rather than directional. The group repeatedly emphasized supply discipline and gradual rebalancing, while some members pushed for a production “comeback.” At the same time, whispers of oversupply grew louder, fueled by uneven compliance, rising output from non-OPEC producers, and resilient exports from sanctioned countries.
For the market, inventory levels and demand forecasts mattered more than declarations. The fear was no longer scarcity, but whether global consumption could absorb available barrels. This shift in perception capped rallies and encouraged selling into every price spike.
Difficult Lesson for Tehran
For Iran, 2025 was a year of strategic resilience but limited leverage. Despite sanctions and direct security threats, Iranian oil exports—primarily to China—continued with remarkable consistency. The June shock underscored a critical reality: as long as Iranian crude reaches the market, tensions alone do not guarantee higher prices.
However, lower global prices reduced the economic benefit of export continuity. Iran sold oil into a buyer’s market, often at high discounts, with reduced pricing power. The year reinforced a difficult lesson for Tehran: geopolitical escalation does not automatically translate into higher oil revenues, particularly in a market shaped by abundant supply and cautious demand.
What 2026 May Hold
Ultimately, Brent’s slide from $74 to $61 in 2025 was not the result of calm, but of normalization. The market absorbed shocks that once would have driven sustained rallies. Demand uncertainty, energy transition dynamics, improved efficiency and flexible supply chains reshaped pricing logic.
As 2026 approaches, the outlook hinges less on geopolitics than on macroeconomics. A meaningful recovery in global demand could restore upward momentum. Without it, even sharper crises may only generate short-lived spikes. Oil remains a strategic commodity, but its market has grown colder, more analytical, and less emotional.
The lesson of 2025 is stark: the age of war-driven oil rallies is fading and fundamentals have reclaimed the final word.
