Oil Prices Rally on Geopolitical Uncertainty Despite Lack of Physical Trigger

The oil market has seen a rally in recent days due to concerns over geopolitical uncertainty following Iran and Trump's tit-for-tat reparations demands.

This development is not new, as oil prices often rise when there are disruptions at the Strait of Hormuz, which accounts for roughly a fifth of seaborne crude transits. However, the current situation differs from past episodes in that it has stayed at the level of demands and signalling rather than affecting shipping directly.

This pattern suggests that the premium in oil prices will likely bleed out unless there is a physical trigger, such as seizures or insurance repricing. The fact that the move came on the absence of a deal to reopen the waterway, rather than new escalation, fits this pattern.

The rally in oil has been accompanied by a rise in gold prices, which is a standard geopolitical pairing. However, copper's muted participation highlights the split between geopolitically driven barrels and growth-driven metals, with China being the largest buyer of copper.