Oil: Sanction Risks Keep Markets on Edge – Danske Bank

Danske Bank research team noted in its latest view that geopolitical tensions surrounding Iran are heating up again, as Washington prepares to impose stricter sanctions that could hit oil flows in the Gulf region. This supply risk factor is keeping the crude oil market on edge.

**Sanction Shadow Intensifies Supply Disruption Fears**

The core market concern centers on shipping safety in the Strait of Hormuz. The strait carries approximately 20% of global oil shipments and is a critical energy chokepoint. Reports indicate that the number of large energy vessels transiting the strait has dropped sharply amid heightened military conflict risks, providing support for market risk premiums. Danske Bank had previously noted that oil prices remain supported at elevated levels due to Middle East tensions and supply disruption risks around the Strait of Hormuz.

**Structural Demand-Side Divergence Cushions the Blow**

Despite significant supply-side risks, shifts in global oil trade patterns are providing some cushion for the market. Analysts noted that the U.S. has relatively low dependence on Middle Eastern oil, with the vast majority of its imports coming from Canada and Mexico, only 4% sourced from Saudi Arabia, and it has become the world's largest net oil exporter. This energy independence means there is a lag effect in the transmission of oil price volatility to U.S. consumption, making it more resilient to short-term supply shocks. Meanwhile, the vast majority of Iran's oil exports are flowing to China through channels that circumvent sanctions.

**Geopolitical and Financial Sanction Linkage Risks**

The key question going forward is whether the U.S. will expand sanctions to include secondary sanctions on Chinese companies, banks, and energy buyers that conduct oil transactions with Iran. If so, geopolitical conflict could evolve into a new phase of U.S.-China economic friction, further disrupting global energy trade flows and financial markets. Market reports indicate that Iran has issued warnings of a tough response, and the evolution of the situation will be a key variable influencing the next direction of oil prices.