War With Iran: Why Oil Didn’t Spike As Expected | Prof G Markets

Quick Overview

Oil prices did not spike as dramatically as expected following the US/Israel strike on Iran's Supreme Leader because of existing geopolitical risk pricing, a current surplus in global LNG supply, and the market's belief that the conflict will remain a short-term event, likely lasting only 4-5 weeks.

Key Points: Oil prices rose but did not spike severely after the US/Israel strike that killed Iran's Supreme Leader Ayatollah Khamenei (0:04-1:07). 20% of the world's LNG flows through the Strait of Hormuz as of 2024, which contributed to oil prices only rising about 7% in anticipation of the attack (0:46-1:40). The market seems to believe the conflict will be short-term (4-5 weeks) and that the US/Iran conflict will not escalate into a broader war (1:15-1:20, 4:04). A major factor preventing a larger spike is that global LNG supply is currently in surplus, insulating consumers from immediate price shocks (2:23-2:55). OpenAI finalized $110B funding at a $730B valuation, double that of its closest rival Anthropic, which had recently refused a Pentagon contract (2:53-13:20). The current global violence level (60 ongoing conflicts) is the highest since World War II, suggesting geopolitical risk is already factored into prices (2:50-29:25). If the Iranian retaliation is limited to short-term strikes, the market may price in less uncertainty compared to the Russia-Ukraine invasion impact.

Context: The video, hosted by Ed Elson on Prof G Markets, analyzes the market reaction to a significant geopolitical event: the killing of Iran's Supreme Leader Ayatollah Khamenei by a US/Israel strike on February 28, 2026. The discussion centers on why oil prices, despite the event, did not surge as dramatically as anticipated, involving analysis of existing geopolitical risk premiums, global energy supply dynamics (especially LNG), and the market's perception of the conflict's likely duration and scope.

Detailed Analysis

Oil prices rose modestly following the US/Israel strike that killed Iran's Supreme Leader Ayatollah Khamenei, rather than spiking dramatically, because geopolitical risk was already largely priced in. Analysts noted that 20% of the world's LNG flows through the Strait of Hormuz, making disruptions a known risk factor, leading to only a 7% oil price increase. The market appears to anticipate a short conflict, potentially lasting 4-5 weeks, rather than a protracted war. A key factor dampening the oil price surge is the current global surplus in LNG supply, which insulates consumers from immediate cost hikes, though this is not necessarily positive for oil investors. The discussion also touched upon OpenAI finalizing a massive $110 billion funding round at a $730 billion valuation, double that of competitor Anthropic, shortly after Anthropic reportedly refused a Pentagon contract due to ethical concerns about military use. This political maneuvering by Anthropic is contrasted with OpenAI securing its deal swiftly. The expert guest, Matt Smith, an Oil Analyst at Kepler Consulting, explained that the market is currently pricing in a higher baseline of global conflict (60 ongoing conflicts, the most since WWII), leading to less volatility when a new conflict erupts unless it severely impacts supply routes like the Strait of Hormuz or leads to a change in the Iranian regime or prolonged military action.