There's a classic scene in The Godfather Part III where Michael Corleone says: "Just when I thought I was out, they pull me back in."
Yeah. Oil tried to settle down. The market tried to play it cool. And then the U.S. and Israel decided to escalate tensions with Iran, and crude woke up like a cornered animal.
The cold, hard facts
Oil surged after signals of an expanding conflict between the U.S., Israel, and Iran became impossible to ignore. We're not talking about diplomatic tweets or a sternly worded UN statement — we're talking about real military moves, concrete risks of crude supply disruptions, and the Strait of Hormuz landing back on every trading desk's radar.
For those who forgot basic geography (and I know a lot of people in finance did): the Strait of Hormuz is that chokepoint through which roughly 20% of all the oil consumed on the planet passes. Twenty percent. One fifth. If Iran decides to shut it down — or if an "incident" happens — the price per barrel doesn't take the stairs, it takes the elevator. Express, no stops.
The analyst circus: "it's already priced in"
Every single time a bomb drops in the Middle East, some guy in a slim-fit suit pops up in your Instagram feed saying "the market has already priced in the geopolitical risk."
Priced in what, exactly, bro?
The market doesn't price in war. The market reacts to war. There's a brutal difference between modeling a probabilistic risk in a pretty Excel spreadsheet and having a missile heading toward oil infrastructure. Nassim Taleb has a name for this: Black Swan. Or at the very least, a Gray Swan — because everyone knows the tension is there, but nobody knows how bad the shitstorm will be when it blows up.
Anyone who was trading oil in September 2019, when Houthi drones attacked Saudi Aramco's facilities at Abqaiq, remembers it well. The market "had priced in" the risk. Until the price per barrel jumped 15% in a single day. The biggest intraday spike in decades. Priced in real nice, huh?
What actually changes in practice
Let's get to what matters:
1. Supply under pressure. Iran produces around 3.2 million barrels per day. Any escalation that hits that output — or worse, that disrupts traffic through Hormuz — throws the supply-demand balance straight in the trash.
2. The geopolitical risk premium is going up. Bet on traders padding the price. That means more expensive gasoline, more expensive diesel, more expensive freight. And guess who pays? You, at the grocery store.
3. OPEC+ is in a real bind. Saudi Arabia and Russia were already juggling production cuts. Now, if Iran gets knocked out of the game (voluntarily or otherwise), the equation changes completely. And OPEC+ doesn't exactly have a stellar track record of reacting quickly.
4. The dollar and Brazilian commodities. Rising oil plus a strong dollar is the perfect storm for Brazilian inflation. Does Petrobras go up on the stock exchange? Probably. But the guy filling up his tank to drive to work isn't buying PETR4 — he's buying gas at six-fifty a gallon.
The question nobody asks
Everyone wants to know "is it going higher?" The right question is different:
Do you have portfolio protection for a scenario where oil hits $120 a barrel?
Because if things really escalate — and history shows that in the Middle East, "really" happens with disturbingly high frequency — it'll be too late to cry about it.
Bruce Kovner, one of the greatest commodity traders in history, used to say that the most important thing in the market is knowing what you don't know. And right now, nobody knows how far this escalation goes.
So stop listening to the guru who says "it's already in the price" and start thinking about what happens if it's not.
Damn, when are we going to learn that the market isn't a model — it's a battlefield?
