Following the dramatic events of recent months, financial markets have rapidly concluded that the energy crisis is over. Oil prices have fallen sharply from their wartime highs, shipping through the Strait of Hormuz has gradually resumed, and OPEC+ is once again discussing increasing production. At first glance, this appears to signal a return to normality. That conclusion may prove dangerously premature. The latest agreement within OPEC+ to raise production quotas by a further 188,000 barrels per day in August reflects growing confidence that the temporary ceasefire between the United States and Iran will hold. Since the beginning of the conflict, the group has already authorised almost one million additional barrels per day of production, reversing much of the supply restraint implemented over the past two years.

Under normal circumstances, such an increase would point towards a more comfortable oil market. Indeed, Brent crude has already fallen by more than 40% from its wartime peak, reinforcing expectations that inflationary pressures could ease over the coming quarters. However, this is only one side of the equation. The physical oil market may be improving, but the geopolitical infrastructure supporting it remains remarkably fragile. Only days after diplomatic discussions resumed, a Qatari LNG carrier was struck near the Strait of Hormuz. While the incident did not halt maritime traffic, it served as a reminder that the ceasefire remains political rather than operational. Shipping companies continue to split their routes between Iranian-controlled and Omani corridors, insurance premiums remain elevated, and commercial operators continue to assess each voyage according to their own security analysis rather than any perception of lasting stability.

In other words, supply has returned, but confidence has not. This distinction matters because today’s energy market is no longer driven solely by physical supply and demand. It is increasingly influenced by geopolitical risk premiums. Even if OPEC+ continues to restore production, the market could rapidly tighten again should attacks on shipping intensify or negotiations between Washington and Tehran deteriorate. Conversely, if peace gradually becomes more durable, the additional production coming from Saudi Arabia, Russia and other Gulf producers could create a genuine surplus later this year. That creates a difficult dilemma for OPEC+. For several years, the organisation has successfully managed prices by restricting production. If global inventories begin to rise while demand softens, producers will once again face an uncomfortable choice: cut production to defend prices or compete for market share. History suggests that such decisions rarely remain purely economic. Internal tensions are already becoming visible. Iraq has questioned its production limits, while the United Arab Emirates has already left OPEC after years of frustration over output restrictions despite significant investment in additional production capacity. As spare capacity gradually returns following the reopening of Hormuz, these differences may become increasingly difficult to manage. The risk is therefore shifting from a supply shock towards a policy shock.

For investors, the implications extend well beyond the energy sector. Lower oil prices should undoubtedly ease some of the inflation concerns that have dominated central bank thinking during recent months. However, policymakers are unlikely to reverse their cautious stance quickly. As we have argued consistently, central banks have learnt the lessons of the post-pandemic inflation cycle. Temporary improvements in energy prices are unlikely to trigger an immediate return to aggressive monetary easing. At the same time, energy markets remain exceptionally vulnerable to renewed geopolitical disruption. The attack on the LNG carrier demonstrates that one isolated incident is sufficient to remind markets that the Strait of Hormuz remains one of the world’s most strategic—and fragile—maritime corridors. Consequently, volatility is likely to remain elevated.

Our long-term view therefore remains unchanged. The recent decline in oil prices should be welcomed, but it should not be mistaken for a permanent resolution of geopolitical risk. The structural forces driving global energy markets have not disappeared. OPEC+ still faces difficult strategic choices, tensions between major producers continue to build, and the security of global shipping remains far from guaranteed. The market has shifted from pricing a worst-case scenario to assuming an almost-perfect outcome. History suggests that reality usually lies somewhere in between.