The US-Iran nuclear talks are expected to resume on Thursday, with Trump specifically demanding to hear "Never nuclear," causing an early movement in oil prices.

The US and Iran nuclear negotiations have entered a critical phase, causing fluctuations in the crude oil market.

According to Xinhua News Agency, citing sources familiar with the Trump administration, although no final decision has been made, Trump is inclined to carry out a preliminary strike on Iran in the coming days to signal to Iranian leaders that Iran must agree to relinquish its nuclear weapons capabilities. The global oil market is holding its breath, awaiting this week’s negotiations to assess the real risks facing Middle Eastern energy supplies.

MarketWatch reports that US and Iranian negotiators are expected to resume talks on Thursday in Geneva. On Tuesday evening, Trump again pressured Iran in his State of the Union address, stating “We are negotiating with them, they want an agreement, but we haven’t heard the key phrase yet: ‘We will never have nuclear weapons.’” This statement brings the political premise of the negotiations to the forefront and keeps the market highly alert to the risk of negotiations breaking down.

Oil prices have already reacted. Tensions between the US and Iran have pushed prices to a six-month high, with WTI crude rising 0.29% to $65.82 per barrel. Traders are closely watching for any signals of escalation that could impact Iranian oil production or trigger a Strait of Hormuz blockade. Meanwhile, the US has assembled a large military presence in the Middle East, and Trump has indicated he is considering limited military strikes against Iran.

Iran’s Role in the Global Oil Market

Iran’s share of global oil supply has significantly shrunk due to long-term sanctions and foreign capital withdrawals. According to Bloomberg data, the country’s daily production is about 3.3 million barrels, accounting for roughly 3% of global supply, ranking fourth within OPEC behind Saudi Arabia, Iraq, and the UAE.

Iran’s oil industry once enjoyed a more glorious history. In the mid-1970s, during its peak, Iran produced over 10% of the world’s crude oil, making it the second-largest producer in OPEC. After the 1979 Islamic Revolution, the new regime expelled foreign oil companies, causing a sharp decline in production, which has never returned to its peak levels. In 2018, Trump’s withdrawal from the Iran nuclear deal and reimposition of sanctions thwarted efforts by major Western oil companies to re-enter the Iranian market.

Strait of Hormuz: The Vital Passage That Moves the World

Analysts believe that the primary risk is not the interruption of Iran’s oil supply itself, but the potential blockade of the Strait of Hormuz.

The Strait of Hormuz is a narrow waterway connecting the Persian Gulf and the Arabian Sea, through which about 16.5 million barrels of oil are exported daily, including most of Saudi Arabia, Iraq, UAE, and Qatar’s exports. The Iranian government has previously stated it has the capability to impose a naval blockade of this waterway during geopolitical tensions, although it has not yet done so.

Bloomberg reports that during the 12-day conflict between Israel and Iran last June, regional tensions sharply escalated, causing the benchmark freight rate for supertankers transporting 2 million barrels of oil through the Middle East to surge dramatically, vividly illustrating the impact of threats to the Strait of Hormuz on energy transportation costs.

It is worth noting that some major oil-producing countries have alternative routes around the strait: Saudi Arabia can transport oil via a roughly 1,200-kilometer pipeline across the country to Red Sea ports; the UAE can reroute its approximately 1.5 million barrels per day of exports through a pipeline ending in the Gulf of Oman. However, Iraq and Kuwait do not yet have similar alternative routes.

Oil Revenues and Iran’s Negotiation Leverage

Oil exports remain the core pillar of Iran’s economy. According to Bloomberg estimates, even under sanctions, Iran sells its oil at about a $45 per barrel discount (after transportation and other costs), and last November alone, Iran’s oil revenue was estimated at $2.7 billion. In 2023, the oil sector contributed about 2 percentage points to Iran’s GDP growth, with the overall economy expanding around 5%.

However, Trump’s “maximum pressure” policy continues to squeeze this revenue source. If this policy successfully deters Chinese buyers, Iran’s oil exports will face greater pressure; if Iran further lowers prices to compete for market share against Russia’s discounted oil, its revenue will shrink again.

These economic pressures motivate Tehran to participate in negotiations but may also strengthen its resolve to stick to its bottom line on nuclear issues. The outcome of this week’s Geneva talks will largely determine the short-term volatility of the global crude oil market.

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