Oil Price Volatility Returns After U.S.-Iran Drill

Oil price volatility returned on February 18, 2026, as mixed U.S.-Iran nuclear talks and an Iranian live-fire drill in the Strait of Hormuz reversed earlier optimism, pushing crude prices sharply higher amid renewed geopolitical risk.

Prices and Risk Scenarios

WTI crude rose 4.4% to $65.01 a barrel, while Brent climbed 3.9% to $69.01 a barrel. The prior session saw crude fall about 1% as traders reduced risk premiums following signs of negotiating progress, leaving oil roughly 9% higher year to date. Citi analysts estimate a $5–$7 per-barrel geopolitical risk premium is currently embedded in prices. Other strategists warn that a major disruption could add 15%–20%, lifting crude into the mid-$70 range, while an extreme escalation could trigger a temporary spike above $100 a barrel.

Geopolitical and Supply Drivers

Iran’s Islamic Revolutionary Guard Corps conducted live-fire drills on February 17 that temporarily closed the Strait of Hormuz, a key oil chokepoint. Analysts described the move as signaling rather than an immediate supply shock. Junaid Ansari of Kamco Invest said, "We believe that this is messaging and counter-messaging between the US and Iran. We believe that this is a part of the overall negotiation from both sides." Traders remain cautious, as a repeat or escalation could prompt a reassessment of the risk premium.

The Strait of Hormuz channels about 20% of global daily oil consumption, roughly 20 million barrels per day. Shipping groups recorded about 135 crude tankers and 150 product tankers transiting weekly. They expect a partial, temporary closure would cause delays and nuisance rather than halt trade. Industry bodies noted that restricted transit during military exercises is common and should not impede flow.

Gulf producers have contingency routes: Saudi Arabia and the UAE could reroute approximately 2.6 million barrels per day through pipelines to Red Sea and Gulf of Oman ports, mitigating an immediate supply outage. Historically, Iran has not fully closed the strait despite past threats, shaping market assumptions about the threshold for a true supply shock.

Diplomatic and military signals continue in parallel. Negotiators completed a second round of talks in Geneva and agreed to meet again in Oman. Officials described progress despite persistent disagreements over nuclear, missile, and regional issues. U.S. Vice President JD Vance acknowledged some progress but said key red lines remain unresolved. The U.S. deployed a second carrier strike group, positioning the USS Abraham Lincoln within striking distance, maintaining the possibility of military escalation in traders’ calculations.

Iran’s economic strain adds pressure to negotiations. Official oil export receipts fell about 10% to $30.7 billion in the first half of the fiscal year starting March 21, 2025. Persian Gulf terminal loadings dropped to 1.39 million barrels per day in January, a 26% year-over-year decline. Chinese discharges of Iranian crude fell to roughly 1.13 million barrels per day in January from about 1.4 million barrels daily in 2025. Iranian grades traded at an $11–$12 per-barrel discount to benchmarks, up from around $3 a year earlier. Unsold cargoes on tankers rose to more than 170 million barrels. Rising storage and transport costs now consume about one-fifth of oil revenue. The rial has depreciated roughly 75% since February 2025, amplifying economic pressure on Tehran.

Traders and analysts expect price swings to remain driven by negotiation headlines and military signaling rather than near-term supply-demand fundamentals, keeping volatility elevated as talks move from Geneva to Oman.