Oil markets are no longer pricing the Iran-Israel conflict as an ongoing risk. That isn't because the events lacked severity—the June exchange marked the most direct and destructive confrontation between the two in modern history. But over the span of just a few trading sessions, the geopolitical premium that had lifted Brent crude evaporated. Markets appear to believe the threat has passed.
Markets have taken them at their word. The view now is not just that escalation is unlikely, but that the region's capacity for escalation is fundamentally diminished.
The Reshaping of a Region
Iran’s influence in the region is the weakest it has been in over two decades. Assad’s regime in Syria collapsed in late 2024 after months of rebel advances, removing a historically capable regional military from Tehran’s list of allies.4 Hezbollah, meanwhile, has suffered a series of devastating Israeli strikes, including the so-called "pager attack" that eliminated multiple senior commanders.5 The group remains active, but no longer appears capable of coordinating a multi-front campaign.6
The Houthis appear to be honoring a May agreement with the US to cease disruptions in the Red Sea and the Gulf of Aden. Despite threatening to resume attacks on shipping lanes if the US attacked Iran, the Houthis have yet to make a move and seem unlikely to reignite conflict if the ceasefire holds.7 Hamas remains pinned in Gaza, where Israeli operations have severely degraded its ability to project power. And Russia, Iran’s most powerful international ally, seems too absorbed in Ukraine to provide any assistance.8 For all its historic reach, Iran stands isolated.
The implications for Israel are equally significant. For decades, the specter of Iranian nuclear development and proxy warfare has colored Israeli strategy. While the risk isn’t gone, it has been reshaped. Iran’s capability to retaliate, to escalate, or to control regional tempo is weaker now than it has been in a generation.9 Israel has seized a rare moment to act with relative freedom of maneuver—and appears content, for now, to let its recent show of force stand as both message and deterrent.
As for the United States, Trump already went out on a limb taking direct military action, as isolationist foreign policy—particularly where it comes to foreign wars—has been a relatively consistent stance.10 Trump is loudly and expletively in favor of de-escalation.11
So, while June’s confrontation was historic, its conclusion has been quietly, almost curiously, absorbed by oil markets. That may reflect a new alignment: the region has neither the interest nor the ability to sustain confrontation.
At the same time, oil market fundamentals are asserting a gravitational pull of their own. Despite the brief rally sparked by Israeli airstrikes on June 13, the broader trend remains defined by surplus.
The Real Focus
According to the US Energy Information Administration’s (EIA) June projections, global oil production is forecast to exceed consumption in nearly every remaining month of 2025 and through most of 2026.12 The agency’s revisions over recent months have also been notable: not only were recent surpluses revised upward, but expected surpluses for the second half of 2025 were also amended higher.13
Consumption is growing, but only modestly—700 to 800 thousand barrels per day annually. Production, meanwhile, is rising faster, particularly from non-OPEC+ countries. Inventories surged in May by 93 million barrels, according to the IEA, reinforcing the idea that the market is well-supplied.14
This context matters. For years, any sign of Middle East instability could reliably ignite an oil rally. But in 2025, even an unprecedented military exchange between Iran and Israel failed to push prices materially higher for more than a week. That tells us something new: not just about this conflict, but about the structure of the oil market itself.
When supply is exceeding demand, inventories are building and major producers are standing by with spare capacity, geopolitical shocks become less sticky.14 They may still matter, but they no longer define the trend. For now, markets have turned the page.
Important Disclosures & Definitions
1 Nikounazar, L., & Yee, V. (June 24, 2025). Iran Casts Cease-Fire as Proof That Its Military Has Prevailed. The New York Times.
2 Goller, H. (June 24, 2025). Netanyahu declares historic win, says Israel removed Iran’s nuclear threat in 12-Day War. Reuters.
3 Mason, J. (June 25, 2025). Trump signals US may ease Iran oil sanction enforcement to help rebuild country. Reuters.
4 Gebeily, M., & Azhari, T. (December 8, 2025). Syrian rebels topple Assad who flees to Russia in Mideast shakeup. Reuters.
5 Saul, J., & Georgy, M. (November 11, 2025). Netanyahu approved pager attacks against Hezbollah, spokesman says. Reuters.
6 Bassam, L., Perry, T., & Gebeily, M. (November 28, 2025). Still counting its dead, Hezbollah faces Long Road to recover from war. Reuters.
7 Stewart, P., & Ali, I. (June 24, 2025). Yemen’s Houthis likely to be persistent problem for us, senior military official says. Reuters.
8 Antonov, D. (June 24, 2025). Kremlin rejects charge it did little to help Iran. Reuters.
9 Goldbaum, C. (June 22, 2025). Facing a Grave Threat, Iran Is Isolated. The New York Times.
10 Holland, S., & Brunnstrom, D. (June 25, 2025). The latest US foray into military action has a name: The trump doctrine. Reuters.
11 Timmons, H., Law, Z., Balintec, V., MacLellan, K., Suleiman, F., Anagnostopoulos, C., Yip, R., & Russell, R. (June 24, 2025). Trump swears using F-word, says Israel and Iran broke ceasefire, as it happened. Reuters.
12 US Energy Information Administration. (June 10, 2025). Short-Term Energy Outlook, June 2025. Energy Information Administration [Report].
13 US Energy Information Administration. (March 11, 2025). Short-Term Energy Outlook, March 2025. Energy Information Administration [Report].
14 International Energy Administration. (June 2025). Oil Market Report - June 2025. Energy Information Administration [Report].
AAI000960 07/01/2026