-Tensions, conflicts, or sanctions can reduce oil production or disrupt supply chains, causing a drop in oil supply. For example, when the U.S. reimposed sanctions on Iran, Iran’s oil exports dropped, contributing to higher prices due to lower global supply.
Shipping Routes:
-The Strait of Hormuz, a key passage for oil shipments, is vital for the export of oil from the Gulf region. Any threats or blockages (like the tension between the U.S. and Iran) can raise oil prices because traders fear disruptions in this critical shipping lane.
Uncertainty in the Market:
-Geopolitical instability makes oil traders nervous. The fear of potential supply shortages can lead to price hikes, even if no immediate disruption happens. For example, when conflict breaks out near major oil-producing areas, oil prices can spike as markets react to the uncertainty.