Key Points
- First 5-day pause triggered a sharp oil sell-off, briefly pushing Brent below $100 per barrel
- Markets reversed quickly as conflict risks and supply disruptions persisted
- A 10-day extension failed to trigger a similar price collapse
- Traders increasingly price in prolonged geopolitical disruption rather than short-term pauses
ISLAMABAD: Global oil markets are on a rollercoaster, swinging between relief and renewed fear, as the duration of geopolitical risk now matters more than diplomatic announcements.
Despite President Trump’s announcement of another 10-day pause in strikes on Iran’s energy sites, crude prices behaved stubbornly and stayed above the $100/barrel mark.
This reflected a striking pattern: sharp reactions to early optimism after the initial five-day deferment of hostilities, followed by stubborn resistance to further declines even after a longer thaw in the war.
The latest 10-day extension of the moratorium on attacks targeting Iran’s energy infrastructure initially raised expectations of easing supply risk.
However, oil prices remained elevated, exposing a deeper shift in market psychology.
Five-day pause: the reliever that broke $100 barrier
The first five-day pause announcement triggered a dramatic market reaction. Brent crude plunged to just below the $100 per barrel threshold, while US benchmark West Texas Intermediate saw even steeper declines.
The move reflected sudden optimism that military confrontation might de-escalate into negotiations. Traders rapidly unwound risk premiums built into prices amid fears of supply disruption through key shipping lanes such as the Strait of Hormuz.
At that moment, the market narrative shifted from war risk to potential resolution, driving one of the sharpest short-term sell-offs in recent months.
Fast reversal over fading optimism
The relief did not last at all because Iran insisted on denying talks and expressed a lack of confidence in the US. As clarity over negotiations weakened and conflicting signals emerged from Tehran and Washington, traders reassessed the situation.
Supply disruption risks remained intact, and physical flows of crude from the region showed little sign of normalisation. Prices quickly rebounded above the $100 mark, erasing most of the earlier decline.
This reversal highlighted a key market reality: without confirmed restoration of supply, temporary pauses carry limited weight.
Ten-day extension: Why markets did not react the same way
When the pause was extended to ten days, the reaction was notably muted. Unlike the first announcement, the extension failed to trigger a deep sell-off. Brent crude remained elevated, with only modest intraday fluctuations.
The difference lay in credibility. Traders increasingly viewed the extension not as a path to resolution, but as a tactical pause within a broader, unresolved conflict.
Riks Premium becomes structural
Market analysis echoed by global financial reporting, including Bloomberg and the Financial Times, suggests that oil pricing has shifted into a new phase. The geopolitical risk premium is no longer event-driven; it is becoming structural.
In simple terms, this means traders are no longer pricing oil based on announcements alone, but on the assumption that disruption could persist for an extended period.
Why crude is discounting diplomacy
Several factors explain why longer pauses are failing to bring prices down:
First, physical supply disruption remains unresolved. Markets care less about statements and more about barrels actually returning to global supply chains.
Second, the Strait of Hormuz remains a critical vulnerability. Even a limited risk to this route keeps a baseline premium in prices.
Third, traders are increasingly focused on duration risk—the possibility that instability could last months rather than days.
Global Spillovers: Winners and losers
High oil prices are reshaping the global economic balance. Import-dependent economies face rising inflation, widening trade deficits, and currencies under pressure. Advanced economies with weaker growth trajectories are particularly exposed to energy shocks.
By contrast, energy-exporting countries are benefiting from higher revenues, improved fiscal balances, and stronger external accounts.
This divergence is reinforcing a split global recovery, with resilience depending heavily on energy self-sufficiency and economic diversification.
What traders watch next
Market participants are now focused on three key indicators: Actual restoration of crude flows from the region; Stability of shipping routes through the Strait of Hormuz; and credibility of diplomatic signals versus military developments.
Until these factors shift decisively, oil markets are likely to remain in a highly volatile phase with temporary political pauses having a limited lasting impact.
In this environment, the message from crude is increasingly clear: announcements may move prices briefly, but only lasting peace changes the trend.
