Oil Is Flowing From the Persian Gulf, but Prices Remain High. Why?

A sustained de-escalation in Middle East tensions or a credible diplomatic settlement would likely allow the geopolitical risk premium embedded in crude prices to compress, potentially putting downward pressure on energy costs and inflation expectations even if physical supply remains unchanged.

If geopolitical uncertainty persists without major escalation or resolution, crude could remain range-bound near current levels as traders balance supply availability against lingering tail-risk hedging, keeping energy inflation sticky and constraining broader margin recovery in rate-sensitive sectors.

A material disruption to Persian Gulf flows—whether from direct conflict, blockade, or infrastructure damage—would remove the disconnect between physical supply and price, likely driving crude sharply higher and reigniting inflation concerns that could pressure equities and extend duration of elevated real rates.