Geopolitical Risk and Oil Market Implications of US-Israel Iran Policy Disagreement

The failure of President Trump and Israeli Prime Minister Benjamin Netanyahu to reach a consensus on Iran strategy following their February 2026 meeting introduces significant uncertainty into an already tense geopolitical landscape. This policy divergence between two of Iran’s primary adversaries creates a multifaceted risk environment that could substantially impact global oil markets, with price volatility potentially ranging from short-term spikes of 3-7% to sustained premiums of $10-15 per barrel depending on escalation scenarios.

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The fundamental disagreement between Washington and Jerusalem centers on the

of potential negotiations with Tehran. According to Reuters reporting, President Trump has articulated a relatively focused approach, stating that a “good deal” would encompass “no nuclear weapons, no missiles” [1]. This positions the United States toward a nuclear-centric agreement that addresses immediate proliferation concerns while leaving broader security architecture for future discussions.

Prime Minister Netanyahu, conversely, has advocated for a

that extends beyond nuclear proliferation to include:

1. Ballistic Missile Limitations
   : Constraints on Iran’s intermediate and long-range missile capabilities
2. Proxy Network Dismantling
   : Curbing Iranian support for regional proxies including Hamas, Hezbollah, and Houthi forces
3. Security Guarantees
   : Formal commitments embedding Israeli security interests into any eventual agreement
4. Verification Protocols
   : Enhanced monitoring mechanisms covering both nuclear and missile infrastructure

Iran has historically rejected linking missile programs to nuclear negotiations, creating an inherent tension that the US-Israel disagreement amplifies rather than resolves [1].

The absence of aligned positions creates several operational uncertainties:

• Coordination Gaps
  : Disagreements on negotiation parameters may lead to uncoordinated military posturing or intelligence sharing
• Signal Confusion
  : Iran may exploit divergences to pursue divide-and-negotiate strategies
• Alliance Credibility
  : Both nations’ deterrence credibility may be questioned by Tehran

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The policy vacuum created by this disagreement introduces

:

1. Military Escalation
   : Without unified red lines, either party may unilaterally pursue kinetic operations against Iranian nuclear facilities, risking retaliation that could draw in both nations
2. Negotiation Collapse
   : Conflicting objectives may cause US-Iran negotiations to stall, removing diplomatic off-ramps
3. Managed Uncertainty
   : Both powers may deliberately maintain pressure while avoiding direct confrontation, creating prolonged instability

The Middle East’s security architecture becomes

when the two principal actors maintaining pressure on Iran operate without coordination. This affects:

• Gulf States’ Calculations
  : Saudi Arabia, UAE, and other regional powers must hedge between two potentially divergent US and Israeli approaches
• European Engagement
  : EU allies pursuing separate diplomatic channels face uncertainty about American commitment levels
• Russian opportunism
  : Moscow may exploit trans-Atlantic/Western disagreements to expand influence with Tehran

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The June 2025 Israeli-Iranian skirmishes provide a recent template for market reaction dynamics:

• Immediate Impact
  : Brent crude prices surged approximately 3% to reach five-month highs as traders priced in potential Strait of Hormuz disruptions
• Peak Premium
  : Goldman Sachs estimated a
  $10 per barrel geopolitical risk premium
  at the height of tensions [2]
• Rapid Reversal
  : Following the June 23 ceasefire and Iran’s decision not to close the Strait, prices experienced a 6% drop, followed by an additional 7% decline

This pattern demonstrates that

, while sustained tensions create more durable risk premiums.

Recent market behavior indicates heightened sensitivity to US-Iran developments:

• February 2026 Volatility
  : Oil prices experienced significant swings during the week of the Trump-Netanyahu meeting as traders assessed the trajectory of negotiations [3]
• Talks Dependency
  : FXEmpire analysis indicates crude oil remains in a “holding pattern” as traders calibrate supply risk near the Strait of Hormuz [4]
• Risk Premium Fluidity
  : Oil analyst Tamas Varga noted that markets continue focusing on US-Iran tensions, with prices likely to decline absent concrete disruption signs [5]

The Strait of Hormuz represents the

connecting Persian Gulf producers to global markets:

Scenario	Potential Daily Disruption	Price Impact
Partial Shipping Delays	5-10 million barrels	$3-5/barrel premium
Complete Closure	18-20 million barrels	$15-30/barrel premium
Facility Attacks	3-5 million barrels	$5-10/barrel premium

However,

and (though costly) limit the long-term sustainability of premiums during disruption scenarios [2].

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• Oil remains range-bound with modest premiums ($2-4/barrel)
• Volatility dampens as markets price in continued diplomatic engagement
• Probability
  : 50-60%

• Short-term spike of 5-8% in crude prices within 24-48 hours
• Premium stabilizes at $5-8/barrel if conflict remains contained
• Resolution within weeks normalizes prices
• Probability
  : 25-30%

• Premium surges to $15-25/barrel sustained over months
• Physical supply disruptions materialize
• Global economic growth impacts dampen demand
• Probability
  : 10-15%

• Risk premium collapses entirely
• Prices may decline below fundamentals as premiums unwind
• Probability
  : 5-10%

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1. Hedging Strategies
   : Maintain positions in call options to capture upside while limiting downside exposure
2. Volatility Surface
   : Expect elevated implied volatility across tenors, particularly in near-dated contracts
3. Time Spreads
   : Contango may steepen as storage demand increases for physical crude

1. Supply Chain Resilience
   : Review alternative sourcing arrangements for petrochemical feedstocks
2. Budget Revisions
   : Factor 5-10% energy cost contingencies into 2026 planning
3. Contingency Planning
   : Update business continuity plans for sustained $80+ Brent environments

1. Sector Rotation
   : Energy sector may outperform during sustained premium environments
2. Currency Correlations
   : USD strength may amplify commodity price effects for non-US investors
3. Diversification Limits
   : Traditional diversification may prove insufficient during extreme scenarios

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The lack of consensus between the United States and Israel on Iran strategy creates a

:

1. Direct Geopolitical Risk
   : Elevated probability of miscalculation or unilateral action that could trigger military escalation
2. Market Uncertainty Risk
   : Persistent ambiguity about Western coordination may sustain elevated risk premiums regardless of actual developments

The oil market’s historical response patterns suggest that

in response to any negative news flow, with potential for 3-7% immediate movements. Sustained premiums of $10-15 per barrel would require either significant physical supply disruption or credible indicators of prolonged regional instability.

Market participants should

that account for rapid transitions between these states, as the June 2025 experience demonstrates how quickly premiums can materialize and subsequently collapse based on de-escalation signals.

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[1] Reuters - “Trump says no ‘definitive’ agreement with Netanyahu, US talks with Iran to continue” (https://www.reuters.com/business/aerospace-defense/israels-netanyahu-expected-press-trump-over-iran-diplomacy-2026-02-11/)

[2] AInvest - “Assessing the Geopolitical Risk Premium in Oil Markets Amid US-Iran Tensions” (https://www.ainvest.com/news/assessing-geopolitical-risk-premium-oil-markets-iran-tensions-2601/)

[3] OE Digital - “Oil prices fall as traders assess supply risks amid US-Iran tensions” (https://energynews.oedigital.com/oil-gas/2026/02/10/oil-prices-fall-as-traders-assess-supply-risks-amid-us--iran-tensions)

[4] FXEmpire - “Weekly Oil Outlook—Geopolitical Risk Sets Tone for Crude Oil Futures” (https://www.fxempire.com/forecasts/article/oil-news-weekly-oil-outlook-geopolitical-risk-sets-tone-for-crude-oil-futures-1578218)

[5] Energy Intelligence/PVM - Market analyst commentary on US-Iran tension impacts on oil pricing (https://energynews.oedigital.com/oil-gas/2026/02/10/oil-prices-fall-as-traders-assess-supply-risks-amid-us--iran-tensions)