Oil: geopolitics is the name of the game; what to make of it?

Oil prices have firmly been in the grips of a geopolitical maelstrom this week, as tensions between the US and Iran have escalated once more. The price of Brent crude has risen by around 5% on the week to $71pb, driven by a higher risk premium. We estimate the risk premium to be around $7-10pb , which is only a little lower than it was at the height of the 12-day war ($10-12pb). Back then, the risk premium quickly declined once it became clear that military action was calibrated and the path to de-escalation was clear. If a similar dynamic plays out, oil prices could drop back quickly again. But were that not to be the case, oil prices could plausibly rise much further, closer to $100 pb.