The US-Iran nuclear negotiations are expected to restart on Thursday, with Trump explicitly demanding to hear "never possess nuclear weapons," causing oil prices to fluctuate in advance.

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The nuclear negotiations between the United States and Iran have reached a critical juncture, causing fluctuations in the crude oil market.

According to Xinhua News Agency, reports quoting sources within the Trump administration say that although no final decision has been made, Trump is inclined to carry out preliminary strikes against Iran in the coming days, in order to show Iranian leaders that Iran must agree to relinquish its capability to manufacture nuclear weapons. The global oil market is holding its breath as it awaits the results of this week’s negotiations to determine the real risks facing Middle Eastern energy supplies.

According to MarketWatch, representatives from the US and Iran are expected to restart talks in Geneva on Thursday. On Tuesday night, Trump once again pressured Iran during his State of the Union address, stating "We are negotiating with them. They want to reach a deal, but we have not heard the key phrase: 'We will never have nuclear weapons.'" This statement pushes the political premise of the talks to the forefront and causes the market to remain highly alert to the risk of negotiation breakdown.

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 a barrel. Traders are closely watching for any signal that could affect Iranian oil production or trigger a blockade of the Strait of Hormuz. Meanwhile, the US has assembled a massive military presence in the Middle East, and Trump stated he is considering limited military strikes against Iran.

The Role of Iran in the Global Oil Market

Iran’s share of global oil supply has significantly shrunk due to prolonged sanctions and the withdrawal of foreign investment. According to Bloomberg data, Iran produces about 3.3 million barrels per day, accounting for around 3% of global supply, ranking fourth within OPEC after Saudi Arabia, Iraq, and the UAE.

Iran’s oil industry once had a much more illustrious history. At its peak in the mid-1970s, the country contributed over 10% of global crude output and was OPEC’s second-largest producer. After the Islamic Revolution in 1979, the new regime expelled foreign oil companies, resulting in a sharp output drop that has never returned to peak levels. In 2018, during Trump’s first term, the US withdrew from the Iran nuclear deal and re-imposed sanctions, ending efforts by major Western oil companies to re-enter the Iranian market.

Strait of Hormuz: The Vital Choke Point

Analysts believe that the interruption of Iran’s oil supply itself is not the biggest risk; the real concern for the market is the possible blockade of the Strait of Hormuz.

The Strait of Hormuz is a narrow waterway connecting the Persian Gulf to the Arabian Sea. About 16.5 million barrels of crude oil are exported daily through this passage, covering most exports from Saudi Arabia, Iraq, UAE, and Qatar. The Iranian government has previously clearly stated that it has the ability to implement a maritime blockade of the strait during times of geopolitical tension, though it has not done so thus far.

According to Bloomberg, during the 12-day conflict between Israel and Iran last June, regional tensions suddenly escalated, and the benchmark shipping rate for supertankers transporting 2 million barrels of crude from the Middle East surged dramatically, directly reflecting the impact of threats to the Strait of Hormuz on the cost of energy transportation.

It’s noteworthy that some major oil-producing countries have alternative routes to bypass the strait: Saudi Arabia can utilize a pipeline stretching approximately 1,200 kilometers across the country from east to west to ship oil via Red Sea ports; the UAE has a pipeline ending at the Gulf of Oman to transfer approximately 1.5 million barrels of exports daily. Iraq and Kuwait, however, do not have similar alternatives.

Oil Income and Iran’s Negotiating Leverage

Oil exports remain the core pillar of Iran’s economy. According to Bloomberg estimates, even under sanctions, and with oil sold at a discounted price of around $45 per barrel (after deducting transportation and other costs), Iran’s oil revenue in just November last year was estimated at $2.7 billion. In 2023, the oil industry contributed about 2 percentage points to Iran’s GDP growth, and the overall economic expansion for the year was about 5%.

However, the "maximum pressure" policy implemented by the Trump administration continues to squeeze this source of income. If this policy successfully deters Chinese buyers, Iran’s oil exports will face even greater pressure; if Iran further lowers prices to compete directly with Russian discounted crude for market share, its income space will be compressed further.

These economic pressures are both a motivation for Tehran to participate in negotiations and a factor that may strengthen its resolve to hold its bottom line on the nuclear issue. The direction of this week’s Geneva talks will largely determine the short-term volatility in the global crude oil market.

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