Energy Price Differentials Generated by the Conflict in Iran

The military escalation in the Persian Gulf immediately produced a geopolitical premium in oil prices. This premium reflects the risk perceived by the market regarding potential disruptions to energy supply.

According to data cited by the international economic press, the price of Brent crude oil exceeded the threshold of 85 USD per barrel after the intensification of the conflict and following Iran's threats regarding traffic through the Strait of Hormuz (Economic Times, 2026).

At the same time, gas markets reacted to the risk of disruption to energy flows from the Middle East. The price of natural gas in Europe increased by approximately 30%, according to analyses cited by Time magazine regarding the geopolitical impact of the crisis in Hormuz.

This market reaction reflects how the geopolitical risk premium works. In commodity market theory, when a military risk appears along a major energy route, traders immediately incorporate into prices the probability of a reduction in supply. Reports regarding the role of this geopolitical premium in oil prices are frequently analyzed by the International Energy Agency, which shows that geopolitical tensions in production or transit areas can generate rapid increases in energy quotations (IEA, Oil Market Report, 2023).

Price differentials appear because the impact of the conflict is not uniform across all energy markets.

Markets located closer to the conflict area - Europe and Asia - incorporate the risk of supply disruption more quickly. These regions depend to a greater extent on maritime transport of oil from the Middle East.

By contrast, the United States energy market is less exposed. The United States is the world's largest producer of oil and gas due to the shale revolution, according to data published by the U.S. Energy Information Administration (EIA, U.S. Petroleum Supply Monthly, 2024). This energy autonomy reduces the direct impact of shocks in the Persian Gulf on domestic prices.

As a result, regional price differences appear between oil benchmarks.

• Financial arbitrage

These differentials are exploited almost immediately in financial markets.

The first mechanism is the trading of oil futures contracts, especially between the two major benchmarks:

- Brent - the reference for oil traded on global maritime markets;

- WTI - the reference for the North American market.

Traders speculate on the differences between these benchmarks through spread trading strategies. According to analyses published by the Bank for International Settlements, spreads between oil benchmarks are among the most frequently exploited arbitrage opportunities in commodity markets (BIS, Quarterly Review, 2023).

Financial arbitrage is the fastest market reaction mechanism because it does not depend on the physical transport of oil. It can be executed instantly through transactions on exchanges such as ICE or NYMEX.

• Commercial arbitrage

Physical oil arbitrage works differently. It involves the actual movement of cargoes to markets where prices are higher.

Under normal circumstances, traders redirect oil flows to regions with higher prices. This practice is frequently documented in reports by the International Energy Agency, which shows that global traders move cargoes between the Atlantic and Asia to exploit regional price differentials (IEA, Oil Market Report, 2023).

In the current situation, however, this type of arbitrage is much slower because it depends on logistical factors:

- availability of oil tankers;

- transport costs;

- access to maritime insurance;

- security of energy routes.

Routes in the Persian Gulf are directly exposed to military risk. In such situations, shipping and insurance companies may suspend operations or introduce very high risk premiums. This phenomenon is monitored by the Baltic Exchange, the institution that calculates global shipping indices and shows that geopolitical tensions can cause rapid increases in chartering costs (Baltic Exchange, Freight Market Reports).

The conflict in Iran immediately produces regional price differentials in energy markets.

These differentials are financially arbitraged almost instantly through futures contracts and spread trading between oil benchmarks.

By contrast, commercial arbitrage of physical oil appears much more slowly because it depends on logistics, transport, and the security of maritime routes.