Iran Deal Sparks New Uncertainty in Global Energy Markets
The recent U.S. agreement with Iran, touted by President Trump as a breakthrough, is drawing cautious reactions from energy experts who see both promise and peril beneath the surface. As with many diplomatic accords in the Middle East, the reality may prove more complex than the headlines suggest.
Waco economist Ray Perryman and Odessa oilman Kirk Edwards argue that the first thing to grasp is the inherent unpredictability of Iran’s leadership, likening it to the shifting sands of the Lut Desert. “I think we’re likely to see tensions ebb and flow with Iran for a while along with the status of negotiations,” Perryman said. “Beyond that, the long-term situation in the region is anything but stable. There are a lot of stress points in the coming months as the resolution — or lack thereof — unfolds.”
Perryman noted that oil prices were hovering in the mid-$70s per barrel last week, still fluctuating with each new development. “Prices may well remain volatile for a while, but they are down significantly from the $110-plus levels of less than two months ago,” he said. “There is some relief in gasoline and diesel prices in some areas, but the process will take time even if lower prices are sustained. It will take time for supply disruptions to be dealt with, but as long as the Strait of Hormuz remains open, countries can ramp up production and ameliorate the most significant risks — although there are some potential bottlenecks.”
He added that repairs to Middle Eastern energy infrastructure will take time, but current spare production capacity should be enough to prevent major price spikes — barring any additional disruptive events.
Edwards was more skeptical, noting that the memorandum of understanding (MOU) Trump announced is a first step, not a final agreement. “In many respects, there are still more unanswered questions than settled issues,” he said. “The biggest challenge is credibility. Iran has a long history of negotiations that have produced mixed results, so energy markets are likely to remain skeptical until they see actual compliance rather than promises.” Edwards emphasized that the market will watch what Iran does, not what it says.
While Trump has predicted lower oil and gasoline prices, Edwards cautioned: “That is possible in the short term if traders believe additional Iranian barrels are coming back to the market. However, sustaining lower prices is another matter.” He pointed to significant infrastructure damage across the region, strong global demand, and persistent uncertainty about future security conditions in the Middle East.
One of the most critical aspects of the discussions involves the Strait of Hormuz, through which about 20% of the world’s oil passes. “If Iran and Oman are given a greater role in managing traffic through the Strait, there will be intense scrutiny from major consuming nations,” Edwards said. “Countries such as China, India, Japan and South Korea rely heavily on uninterrupted oil flows through that corridor. It is difficult to envision those nations accepting any arrangement that materially restricts access or increases transportation costs through tolls or political leverage.”
Edwards also highlighted the unchanged security posture of Israel. “Even if an agreement is reached, Israel has repeatedly demonstrated it will act when it believes threats are developing near its borders,” he said. “Any future missile, drone or proxy activity could quickly destabilize the agreement and reintroduce risk premiums into energy markets. From an energy perspective, the key question is whether this agreement produces a lasting reduction in geopolitical risk or if it merely creates a temporary pause.”
If Iran uses the next 60 days to increase oil exports while simultaneously rebuilding military capabilities, Edwards warned, markets may eventually conclude that fundamental risks have not changed. “My concern is that expectations may be running ahead of facts,” he said. “We have heard repeated statements over recent months that a deal was imminent only to see negotiations stall. That creates credibility challenges for governments and uncertainty for markets.”
Investors, refiners and consumers, Edwards argued, need clarity and consistency. “The United States currently appears to hold considerable leverage. The challenge for policymakers will be converting that leverage into a durable agreement that improves regional security, protects global energy supplies and provides enforceable mechanisms for compliance. Without those elements, this could prove to be another temporary diplomatic breakthrough rather than a lasting solution.”