Oil Markets Eye Geopolitics: Impact of Early-Year Crises Deemed Modest Amid Supply Surge

Global - Ekhbary News Agency

The global oil markets continue to navigate a complex landscape, where economic forces contend with intricate geopolitical challenges. In its latest monthly report for January, the International Energy Agency (IEA) presented a comprehensive outlook for the oil market in 2026, forecasting robust growth in global demand coupled with a significant increase in supply. Nevertheless, these projections are shadowed by uncertainties, particularly concerning political developments in key producing regions and their potential impact on supply stability.

According to the IEA's estimations, global oil demand is projected to rise by 932 thousand barrels per day (b/d) in 2026, reaching a total of 104.98 million b/d. This forecast represents an upward revision from the agency's December estimates, which had anticipated a growth of 863 thousand b/d. This expected surge in demand is attributed to two primary factors: firstly, the ongoing normalization of global economic conditions following the 'tariff shocks' experienced in 2025, reflecting a gradual recovery in worldwide economic activity. Secondly, the relatively lower oil prices are encouraging increased consumption. Analysts anticipate that the bulk of this demand growth will originate from non-OECD countries, driven by industrial expansion and population growth in emerging economies.

On the supply side, the IEA report projects global oil supplies to reach 108.7 million b/d in 2026, marking an increase of 2.5 million b/d from the previous year. This too is an upward revision from last month's forecast of 2.4 million b/d. This growth is primarily driven by increased production activity in countries outside the OPEC+ alliance, such as the United States, Canada, and Brazil. In the U.S., the shale oil revolution continues to drive output, while Canada benefits from its oil sands investments, and Brazil continues to boost production from its deepwater pre-salt fields. Consequently, the IEA expects oil supply to exceed demand by approximately 3.7 million b/d, implying a substantial market surplus that could be higher than last year's surplus of 2.16 million b/d. This potential surplus suggests downward pressure on prices, posing challenges for OPEC+'s efforts to manage market stability.

However, these forecasts are not without their caveats. The IEA highlights that "geopolitical tensions" in key regions such as Iran and Venezuela cast a shadow over the accuracy of its predictions. In Iran, oil supplies saw a decrease of 350 thousand b/d in December, falling to 1.6 million b/d. While there is a possibility for these supplies to rebound in the coming months, international sanctions imposed on Tehran, coupled with ongoing disputes over its nuclear program, continue to render its oil export situation unstable and volatile. Any escalation in regional tensions could directly impact Iran's ability to export its oil, which remains a vital lifeline for its economy.

Venezuela, possessing the world's largest proven oil reserves estimated at 303.2 billion barrels (approximately 20% of the global total), has witnessed a dramatic deterioration in its production and export capabilities. During the first two weeks of January, Venezuelan oil exports plummeted by 880 thousand b/d, reaching only 300 thousand b/d, representing a nearly twofold decline. This multi-year downturn is attributed to a confluence of political and economic instability, exacerbated by U.S. sanctions targeting Venezuela's oil sector. These conditions have led to aging infrastructure, lack of investment, and dilapidation of production equipment, severely limiting the country's ability to exploit its vast reserves. The report notes that the inability to export oil leads to accumulating inventories within the country, sometimes necessitating partial production shutdowns.

China has historically been a major destination for Venezuelan oil, accounting for over 6% of its total oil imports. With the decline in Venezuelan supplies, analysts anticipate that Russia may find an opportunity to fill this gap in the Chinese market, given its increasing interest in boosting shipments to Beijing. Chinese customs data shows that Russia maintains its status as a leading oil exporter to China, even as Russian supply volumes and values declined in 2025 due to Western sanctions and price caps.

In December, Russian oil exports witnessed growth for the first time in several months. Crude oil exports rose by 250 thousand b/d to 4.91 million b/d, while petroleum product exports increased by 370 thousand b/d to 2.63 million b/d. This growth contributed to an overall increase in export revenues by $0.25 billion, reaching $11.35 billion. However, revenue growth remains relatively weak, partly due to the widening discount between Russia's Urals crude and international Brent crude. According to Argus data, the average price of Urals in December fell to $35.6 per barrel, compared to $41.1 in November, reflecting the impact of the G7-imposed price cap and shifts in global trade routes.

Beyond these specific challenges, broader geopolitical crises, such as the tensions in the Red Sea, are impacting global shipping supply chains, including oil shipments. Although the report did not detail their direct impact on oil prices, the rerouting of vessels around the Cape of Good Hope leads to increased costs and longer shipping times, potentially adding upward pressure on transportation costs and refined product prices in the long term, even if their immediate effect on spot crude oil prices remains modest due to abundant supply.

In conclusion, the IEA believes it is too early to assess the long-term impact of recent political events on oil markets. For now, despite persistent risks to shipment stability, rising oil prices remain constrained by excess supply and high global inventory levels. In November, global inventories increased by 75.3 million barrels, reaching approximately 8.1 billion barrels, and preliminary data indicates continued inventory growth in December. This situation suggests that the market still possesses sufficient resilience to absorb some geopolitical shocks without sharp price spikes, so long as global production levels continue to significantly outpace demand.

Oil Markets Eye Geopolitics: Impact of Early-Year Crises Deemed Modest Amid Supply Surge

IEA Forecasts Significant Surplus as US, Canada, Brazil Boos

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