The Commodities Feed: Brent builds geopolitical premium as Gulf risks rise
The desk's interpretation highlights how rising geopolitical tensions, particularly between the US and Iran, are pushing oil prices higher and may impact FX flows. Per the full note, ICE Brent rallied by over 4% to settle above $113/bbl amid concerns of military escalations, which could endanger oil supplies from the critical Persian Gulf, jeopardizing the previously expected normalization of flows and prices. This surge in oil has significant implications for the euro and other currencies as traders readjust their outlook amidst this risk. With ample geopolitical uncertainty, especially leading into the winter months, the market is likely to remain jittery, squaring off against the current consensus for oil prices and currencies dependent on energy futures.
What the desk is arguing
The desk argues that the recent surge in oil prices, driven by escalating geopolitical tensions, is likely to keep the market volatile. This scenario contradicts previous expectations of a decline in oil prices post-US midterm elections, with the potential for a sustained geopolitical premium in prices, as noted in the commentary. Indeed, reports of the US considering military action against Iran reinforce fears over oil supply stability, maintaining pressure on both energy and associated currency markets.
This raises significant doubts about projections for ICE Brent averaging $80/bbl in the upcoming quarters, particularly the expectation that prices will stabilize. Instead, we may see hedge funds and other players adjusting their strategies, driven by the fear of continued upside risk to oil prices, as previously resilient flow expectations come into question.
Where it sits in our coverage
In our internal coverage of EUR/USD, the current consensus target stands at 1.1600, with a range spanning from 1.1200 to 1.2000 across various firms. For Dec-26, firms such as rabobank (1.1800), cibc (1.2200), and commercialbank (1.2200) have set relatively ambitious targets.
The desk’s assessment aligns around the central part of this spectrum, implying that currency values may underperform against oil shocks, although it does occupy a cautious stance amidst an environment colored by risk.
How other firms see it
The narrative of heightened geopolitical risk is echoed by several firms anticipating continued volatility in energy markets, with hsbc and rabobank emphasizing the potential for elevated oil prices influencing currency pairs like EUR/USD and GBP/USD. Conversely, firms such as nomura and bofa maintain a more pessimistic outlook, envisioning lower currency strength against USD and a long-term bearish oil projection.
As we monitor this evolving geopolitical landscape, keep an eye on related currency movements in USD/JPY, which serves as a broader indicator of sentiments influenced by energy pricing dynamics. Additionally, revisions in ECB policy could further complicate the EUR's trajectory in the coming months.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Oil prices surged 4% on geopolitical fears, settling above $113/bbl, impacting currency dynamics.
- 02The expectation for ICE Brent averaging $80/bbl appears increasingly unattainable amid rising tensions with Iran.
- 03FX movements in EUR/USD and GBP/USD are particularly sensitive to energy price fluctuations, with geopolitical risk holding potential upside for oil.
- 04Expect increased volatility as markets react not only to oil prices but also to any military escalations and their implications on supply.
Market implications
Traders should monitor the EUR/USD level around 1.1600, particularly with geopolitical headlines influencing market flows. Positioning ahead of possible military escalations, as indicated in the commentary, could prompt unexpected shifts in currency valuations tied to energy prices.
Risks to this view
A de-escalation in tensions or clarity over US military intentions could reverse the current bullish sentiment on oil and diminish the geopolitical premium, leading to a potential drop in oil prices and a strengthening of currencies like the EUR and GBP.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.1600 |
ING | Bullish | 1.1300 |
Société Générale | Bearish | 1.1000 |
Articles The Commodities Feed: Brent builds geopolitical premium as Gulf risks rise Published 02:48 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil rallied yesterday as markets grows increasingly concerned about the risk of a renewed escalation in tensions between the US and Iran Warren Patterson and Ewa Manthey Energy – European gas storage draws start Oil prices surged yesterday, with front-month ICE Brent settling 4% higher at just above $113/bbl. The rally is being driven less by current fundamentals than by mounting supply concerns. Markets are increasingly worried about renewed escalation in the Persian Gulf, a scenario that could threaten oil flows that have so far remained remarkably resilient.
Reports suggest President Trump is considering fresh strikes on Iran, while the US is reinforcing its military presence in the region with the deployment of a second aircraft carrier. Meanwhile, there are reports that US troops have been evacuated from some bases in the Middle East. Clearly, these developments don’t paint an optimistic picture.
They call into question our long-held view that the US midterm elections would bring de-escalation and normalisation in flows and oil prices. If anything, re-escalation seems the most likely path. As a result, our expectation that ICE Brent would average $80/bbl over 4Q26 is looking unattainable.
Even if tensions don't re-escalate, the mere possibility is likely to keep a sizeable geopolitical risk premium embedded in prices. European gas prices also remain extremely sensitive to developments in the Persian Gulf, with LNG flows increasingly likely to be largely absent from the market for at least much of the Northern Hemisphere winter. TTF rallied 3% yesterday, settling above EUR90/MWh, its highest since December 2022.
EU gas storage also appears to have peaked at just under 75% full, with storage falling marginally on Tuesday. Metals — Gold falls as energy risks reignite inflation concerns Gold prices failed to benefit from yesterday's equity sell-off and the significant fall in US Treasury yields, with the 10-year yield falling back below 5%. Instead, gold prices came under pressure.
Spot prices fell 2.8% and are nearing $4,000/oz. The gold market appears more focused on higher oil prices and what it could mean for inflation — and ultimately central bank policy. With US inflation still above the central bank’s 2% target, higher energy prices could intensify price pressures and strengthen the case for tighter monetary policy.
LME copper prices declined for a second consecutive session, falling more than 1.9% yesterday, as rising exchange inventories and a selloff in AI-related stocks weighed on broader risk sentiment. LME data showed copper inventories increased by 27,675 tonnes for a fourth consecutive session to 272,950 tonnes as of yesterday, the highest level since 27 July 2026. WTI TTF Treasuries Persian Gulf Natural gas LNG Gold Geopolitics Brent Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
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