Oil markets into early 2026: geopolitics back in the driving seat

The first three weeks of 2026 have delivered a sharp reminder that geopolitics, not balances alone, will set the tone for oil markets this year. The capture of Venezuelan President Nicolas Maduro, US President Donald Trump’s explicit threat of military action against Iran, and Washington’s revived push to acquire Greenland - now spilling into trade tensions with Europe - have together reinforced a core reality for traders and policymakers alike: supply uncertainty is back front-and-centre, even as prices appear deceptively calm.

On the screen, little seems amiss. Brent has remained rangebound, extending the narrow trading bands that defined much of late 2025. Last year’s price action lulled some into believing that the market had rediscovered equilibrium, with Brent averaging roughly $12/barrel below 2024 levels and volatility steadily compressing. Some argued it was only a matter of time before a widely predicted “glut” would assert itself, sending prices into a sharper downward slide.

Those voices have since faded. What looks like the price stability now reads more like a stalemate between perceptions of oversupply and a thickening layer of geopolitical risk.

The events of January have only sharpened that contrast. Venezuela is the most immediate illustration. Markets have so far shrugged off Maduro’s dramatic removal, reasoning that a country pumping under 1 million bpd in an already well-supplied market could not materially shift prices. That logic holds in a narrow volumetric sense, but it misses the bigger picture.

Regime change in Caracas has the potential to rewire crude flows in ways reminiscent of the upheaval triggered by sanctions on Russia after 2022. The US resumption of control over Venezuelan crude sales, leaving pre-ouster recipients such as China and Cuba out in the cold, marks a redirection of flows likely to cascade through supply chains. It also raises fundamental questions about how existing debts to China, Russia, India and Western oil majors will be prioritised. Even if production does not surge for years, the interim reshuffling of flows could generate friction, create winners and losers, and add a fresh layer of geopolitical tension.

Iran sits at the other end of the risk spectrum: large, immediate, and binary. Trump’s threat of strikes on Iranian targets - even if deferred for now - has injected a persistent risk premium into crude prices. Markets appear to be pricing in postponement rather than cancellation. Iran’s importance as both a producer and a chokepoint risk via the Strait of Hormuz means that even low-probability escalation scenarios command attention. As seen repeatedly over the past decade, it does not take an actual loss of barrels for fear of disruption to inject volatility into crude.

Layered onto this is the revival of US interest in acquiring Greenland, a move that has inflamed relations with several European states and raised the spectre of retaliatory trade measures. Coming on top of last year’s headwinds of global trade friction and supply-chain adjustments triggered by Trump’s reciprocal tariffs, further escalation would be negative for global economic growth and, by extension, oil demand.

Meanwhile, US-led Ukraine peace efforts remain stuck in a limbo, with both Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky holding firm on their red lines. While Washington’s launch of an ambitious peace push last November initially weighed on crude prices, the impasse has since created a new set of supply uncertainties, including the risk of a further tightening of sanctions on Russia. Trump has greenlit the “Sanctioning Russia Act of 2025”, a draft bill proposing US import tariffs of up to 500% on major buyers of Russian oil such as China and India, though it has yet to be scheduled for a Congressional vote.

In the meantime, while Ukrainian drone attacks on Russian refineries have eased in recent weeks, strikes on oil-exporting port facilities and tankers continue to cause sporadic disruptions to Russian and Kazakh crude loadings.

These geopolitical cross-currents are colliding with an already unusually wide divergence on 2026 fundamentals. The US Energy Information Administration’s latest short-term outlook forecasts average oversupply of 2.83 million bpd this year, following an estimated 2.58 million bpd surplus last year. OPEC does not publish forward balances, but estimates last year saw a modest 400,000 bpd deficit.

A resolution to the Ukraine war would not deliver a dramatic net increase in global supply, but it could reshape trade routes, freight markets and refining margins. Venezuela’s transition could reorder Atlantic Basin flows. Iran remains a latent flashpoint, and broader US-European frictions add another layer of uncertainty to an already complex outlook.

For the industry, the lesson from early 2026 is clear. “Rangebound” does not mean low risk. Calm prices can coexist with, and even obscure, deep structural and geopolitical tensions. As the year unfolds, oil markets are likely to continue oscillating between narratives of surplus and scarcity, with geopolitics acting as the wild card that prevents complacency. In that environment, certainty will remain scarce, and flexibility will be at a premium.