Iran and Venezuela Put Geopolitics Back in the Driver’s Seat for Oil

Since 1979, eight regime changes in oil-producing nations have typically been followed by sharp oil price increases, with peak moves reaching as high as 76% and an average rise of roughly 30%. These events have often left lasting effects on oil production, export capacity, and long-term supply policy. The Iranian Revolution of 1978-1979 stands as one of the most consequential examples, with oil prices more than doubling and Iranian crude production never returning to pre-revolution levels. Today, Iranian output remains nearly 2 million barrels per day below where it stood before 1978.

The chart highlights the regime-change events in major oil-producing nations, each associated with notable disruptions to oil supply and corresponding movements in global oil prices.

Attention Shifts from Venezuela to Iran

At the start of the year, market focus centered on Venezuela following heightened U.S. involvement. Attention has now shifted to Iran, where protests that began 17 days ago have escalated into the country's most significant unrest in years. Unlike past demonstrations tied to election disputes or social restrictions, the current protests are rooted in economic stress. Electricity shortages, water rationing, severe air pollution in Tehran, food price inflation exceeding 70%, and a 40% devaluation of the Iranian rial over the past year have driven broad public discontent.

Domestic unrest in Iran is now intersecting with rising external pressure. President Donald Trump is considering options that include cyber operations and limited military strikes. Iran has warned it would retaliate if attacked, including against U.S. assets, Israel, and regional shipping lanes. These developments have pushed oil prices higher, with crude rising nearly 9% over the past week. Brent has moved above $65 per barrel, while WTI is trading just above $61.

Even with these gains, prices remain only modestly above forecasted value, signaling limited expectations that Iran's approximately 3.3 mbd of oil supply will be materially disrupted in the near term.

Energy Infrastructure and Global Trade Routes

Any military response is expected to avoid direct targeting of energy infrastructure and major shipping routes. This distinction matters for oil and gas markets, as the broader Middle East region accounts for more than 20 mbd of oil production and roughly 20% of globally traded LNG. A significant share of these volumes moves through the Strait of Hormuz, making the area one of the most strategically important corridors in global energy trade.

Iran has also signaled that retaliation would likely remain measured, provided the regime's survival is not directly threatened, and crude exports can continue.

Iran's Oil History as a Market Reference

The Iranian Revolution provides a clear historical reference for how political upheaval can reshape oil supply. In 1978, Iran was producing about 5.3 mbd. By 1979, production had fallen to 3.17 mbd, and by 1981 it had dropped further to 1.4 mbd. Iranian crude exports declined by roughly 4.8 mbd, representing about 7% of global supply at the time. The subsequent Iran-Iraq war compounded supply losses, contributing to panic buying, speculative stockpiling, and oil prices rising from $13 per barrel in mid-1979 to $34 per barrel by mid-1980.

Although other producers eventually offset some of the lost volumes, Iranian production never recovered to pre-revolution levels. Today's output remains structurally lower, reinforcing how regime disruptions can have multi-decade consequences for oil markets.

U.S. Strategy and Market Implications

U.S. objectives toward Iran are described as transactional rather than regime-changing, centered on security concessions related to uranium enrichment, missile development, and regional proxy activity. In the event of military action, Washington is expected to favor targeted measures that limit escalation and avoid energy assets. The U.S. continues to view the closure of the Strait of Hormuz as a red line, supported by longstanding security commitments and the presence of the U.S. Fifth Fleet in Bahrain.

Historically, oil price shocks tied to Middle East conflicts have often been front-loaded, with prices rising sharply on perceived risk even when physical supply remains intact. In cases where production and exports continue, prices have tended to stabilize and retrace over time. Examples include conflicts in Syria, Yemen, Iraq, and prior U.S. and Israeli strikes involving Iran that did not result in sustained supply losses.

With Iranian political institutions still functioning and energy infrastructure not directly targeted, oil and gas markets are currently reflecting heightened geopolitical risk without fully pricing a major supply disruption.