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The global energy landscape in early 2026 is defined by a volatile intersection of geopolitical interventionism and looming market surplus. As we enter Q1, the oil market’s statistical glut is colliding with a resurgence of political risk. On paper, the International Energy Agency still projects a record oversupply of ~3.8 million barrels per day in 2026 – a surplus equal to nearly 4% of world demand. But in practice, that cushion is at risk of evaporating overnight.
Three vectors dominate this “year of the energy weapon” narrative:
In summary, 2026 has opened with a paradox: paper barrels versus political barrels. On one hand, data suggest an oil glut and potential price softness. On the other, the forceful use of energy as a geopolitical weapon – by the U.S. navy in the Caribbean, by protesters on the streets of Iran, by Moscow and Beijing in behind-the-scenes maneuvers – is injecting a premium back into prices. This report will delve into each of these dynamics, showing how Texas’s steady output is anchoring the market’s calm while upheaval abroad stokes its volatility.
In an era of global instability, the Texas oil and natural gas industry has solidified its position not just as a commercial powerhouse but as a strategic asset. The Texas Oil & Gas Association’s 2025 Energy & Economic Impact Report, released on January 7, 2026, provides a detailed look at an industry operating at peak performance and propping up the state’s prosperity. Even amid “market challenges” in 2025, Texas oil & gas set new benchmarks in fiscal contribution, employment, and production. We break down the highlights:
The headline number is staggering – in Fiscal Year 2025, the Texas oil and gas industry paid $27.0 billion in state and local taxes and state royalties. This is the second-highest total ever recorded, just shy of the record $27.3 billion from FY2024. To put this in perspective, TXOGA President Todd Staples noted that equates to nearly $74 million every day flowing into public coffers. (In FY2024 it was an “extraordinary $74.8 million every day”.) These revenues are a critical stabilizer for Texas – the financial “power behind Texas’ progress,” as Staples describes.
Where does $27 billion rank? In Staples’ words, it’s greater than the entire tax revenues of 34 U.S. states. In other words, if Texas oil & gas were its own state budget, it would outrank two-thirds of other states. This outsized fiscal velocity allows Texas to fund government without an income tax, a key competitive edge. It means that when oil companies succeed, Texas classrooms have new computers, highways get repaired, and salaries for teachers and police are paid – all with industry dollars. “Talk doesn’t grow jobs or keep homes warm,” Staples said in the 2025 briefing, “Action, investment and innovation drive greatness… Texas oil and natural gas has proven – once again – to be the power behind Texas’ progress”.
A closer look reveals how directly oil & gas revenues flow to local communities. Property taxes on oil and gas facilities are a godsend for Texas schools and counties. In FY2025, Texas independent school districts (ISDs) received $2.6 billion in property taxes from mineral properties, pipelines, and gas utilities, while county governments received about $1.0 billion. (This was down slightly from FY2024’s record $2.92 billion to ISDs and $1.03 billion to counties, but still enormous.) These funds are redistributed statewide, meaning oil-rich West Texas helps pay teacher salaries in suburban Dallas and Houston.
In addition, production royalties from state lands feed directly into Texas’s education endowments. In FY2025 the Permanent School Fund and Permanent University Fund together received $3.12 billion from oil & gas royalties – boosting two funds whose combined market value now exceeds $100 billion. The Permanent School Fund, at $66+ billion, is now larger than Harvard’s endowment, making it the biggest educational endowment in the nation. All of that wealth comes from oil and gas activity on state lands. It’s an extraordinary model: hydrocarbon development underwriting generations of education. Likewise, Texas’s “Rainy Day Fund” (Economic Stabilization Fund) gets a slice of severance taxes – over 85% of ESF’s revenue since 1987 has come from oil & gas, totaling $35.9 billion. This fund (now $13+ billion strong) finances infrastructure and can cushion economic downturns, essentially using oil booms to insure against busts.
The takeaway is that Texas’s fiscal health is tightly bound to oil & gas. Each drilling rig and pipeline translates into property tax base for local governments. Each uptick in production means more royalties for the University of Texas and Texas A&M systems. In 2025, even though oil prices were softer than the year prior, the sheer volume of production kept tax revenues near all-time highs – averting budget shortfalls and ensuring the state’s rapid growth is well-supported by public investment.
Beyond taxes, the TXOGA report highlights the employment prowess of the industry. The oil and natural gas sector directly employed over 495,000 Texans in 2025. These are high-quality jobs – the average annual wage was $133,000, roughly 68% higher than the average wage in the rest of Texas’s private sector. That wage premium reflects the skilled nature of modern energy jobs, from petroleum engineers and geoscientists to technicians and trade workers.
Crucially, these jobs have an outsized multiplier. TXOGA estimates that each direct oil & gas job creates approximately 2–3 additional jobs in Texas. Using conservative assumptions, that’s about 1.4 million total jobs supported statewide. Some analyses suggest it could be over 2 million when including induced impacts. In other words, almost 1 in 7 Texas jobs ties back to the oil and gas sector’s activity. When a new drilling project kicks off in the Permian, it’s not just roughnecks hired – it’s also more work for construction crews, truck drivers, equipment suppliers, diners and hotels, even real estate agents. This “economic ripple effect” radiates from energy hubs like Midland/Odessa and Houston to all corners of the state.
The report also underscores hundreds of billions of dollars in payroll that the industry injects into the economy. Since 2007, oil & gas companies have paid more than $250 billion in state/local taxes, but even that pales next to the cumulative payroll to workers and royalties to private mineral owners. Those private dollars fuel consumer spending in Texas – housing, automobiles, philanthropy, and more. It’s an entire ecosystem of prosperity rooted in hydrocarbons.
It’s worth noting that while employment expanded in 2024–25, the nature of oilfield work is evolving. Technology and efficiency gains mean production can grow without proportional headcount growth. Yet Texas has managed to shatter production records while adding jobs and raising wages, a best-of-both-worlds scenario. The sector’s workforce is increasingly high-tech and high-skill. This resiliency in employment defies the narrative that automation would hollow out oil jobs – instead, Texas companies innovated and still put nearly half a million people on payroll, illustrating how growth and productivity can coincide.
Texas’s operational performance in 2025 was nothing short of record-breaking. According to TXOGA, Texas crude oil output hit an all-time high of 5.85 million barrels per day in July 2025. Natural gas production also set a new high at 35.4 bcf/day in August. Most of these gains came from the Permian Basin, which TXOGA calls “the most important basin in the world” – a fair claim given Permian’s prolific growth now rivals the entire output of some OPEC countries.
Downstream and midstream infrastructure expanded to keep pace: Texas now has 472,000 miles of pipelines criss-crossing the state, and LNG export capacity on the Gulf (including Louisiana) reached ~13 bcf/day with more under construction. In 2025, Texas also set new records for crude oil exports (volumes leaving Corpus Christi, Houston, and Beaumont ports) and LNG exports, solidifying its role as the go-to source for allies’ energy needs. With Europe shunning Russian hydrocarbons and Asia hungry for affordable fuel, Texas crude and LNG have effectively become pillars of global energy security. It’s not hyperbole: the Freeport and Sabine Pass LNG facilities kept European lights on last winter, and Texas light sweet crude is filling gaps in European refineries that once processed Russian oil.
Staples addressed the elephant in the room – talk of a coming oil glut – and cautioned observers not to confuse headlines with fundamentals. “Headlines aside, our data show markets adjusting, not breaking,” he said, noting that Texas energy remains “productive, reliable, and globally essential”. In other words, even if analysts project oversupply on paper, the continuous growth in demand (especially from non-OECD countries) and the structural advantages Texas holds (world-class infrastructure, stable regulation, private mineral ownership) keep its industry resilient. TXOGA does “not see evidence of a disorderly oversupply,” but rather an adjustment phase as new projects come online. This perspective is telling – Texas leaders are confident that even if prices dip, their industry can weather it and continue to profitably produce, because it’s among the lowest-cost, most efficient sources of oil on the planet.
In summation, the Texas model – pro-development policies, reinvestment in infrastructure, and a focus on innovation – has yielded an energy sector that not only enriches Texas but provides a crucial buffer to global markets. As we’ll see, that buffer is especially vital given the supply disruptions and power plays happening from Caracas to Tehran.
If Texas represents stability, Venezuela represents the return of radical uncertainty in the oil market. The opening days of 2026 have brought a geopolitical earthquake in Caracas. In a move that analysts have likened to a modern-day “Operation Just Cause,” U.S. special forces executed a surprise raid on January 3, capturing President Nicolás Maduro and flying him out of the country. This stunning decapitation strike, which also eliminated dozens of Cuban security personnel embedded with Maduro, marks a new peak in U.S. interventionism in Latin America.
The removal of Maduro was just the beginning. Washington immediately imposed a naval blockade around Venezuela and intensified maritime patrols across the Caribbean and beyond. The stated aim: to halt all unauthorized oil exports from Venezuela, starving the Maduro regime’s remnants (and their backers) of revenue. Overnight, the clandestine networks that had sustained Venezuelan oil flows – the so-called “dark fleet” of aging tankers that would switch off transponders and conduct ship-to-ship transfers to evade sanctions – were effectively neutered.
Immediate Production Impacts: The result on the ground in Venezuela’s oil patch has been dramatic. With export outlets suddenly shut, storage tanks filled up and PDVSA began shutting in production. Analysts estimate Venezuela’s output, which averaged about 800,000 bpd in late 2025, could plummet by 200,000–300,000 bpd in the short term. Indeed, reports emerged that joint venture partners (like Chevron, who had a sanctions waiver) were asked by PDVSA to scale back operations as pipelines and terminals backed up. If sustained, this could drop Venezuelan production to under 600,000 bpd – the lowest in modern history. Essentially, the country is being forced to shut off wells because it cannot sell the oil now.
Multiple factors are compounding the disruption:
However, this acute shut-in of Venezuelan supply could be relatively short-lived if a political transition proceeds and sanctions relief is granted. The medium-term outlook actually skews bullish (for Venezuelan output, bearish for prices):
Future Scenarios – A Managed Rebound: Washington has already indicated that sanctions will be lifted in phases if a new transitional government (now led by interim President Delcy Rodríguez, Maduro’s vice president-turned-successor) meets certain conditions – e.g. releasing political prisoners, scheduling free elections. If those sanctions are lifted, Western oil companies are poised to rush back in.
In short, the market now faces a bifurcated Venezuelan outlook: a steep short-term supply loss followed by a possible medium-term supply surge. This is one reason oil prices initially barely budged on the Maduro news – traders saw the lost barrels as manageable given the glut, and the future barrels as a longer-term bearish factor. As one analysis put it, front-month prices are “anchored by near-term oversupply” while longer-dated futures reflect the possibility of Venezuela’s return.
The Shift in Export Destinations: A geopolitical shuffle of Venezuela’s customer base is also underway. Under Maduro (and U.S. sanctions), China had become Venezuela’s dominant buyer, often via intermediary routes. In 2023, China imported roughly 144 million barrels of Venezuelan crude – about 68% of Venezuela’s total exports. The U.S., by contrast, took only limited volumes (around 23% in 2023) under special licenses. Cuba and a few others accounted for the rest.
Post-intervention, this will invert:
In essence, Venezuela’s oil is being re-integrated into Western-aligned supply chains and pulled away from its previous orbit in the China/Russia/Iran axis. This realignment serves multiple U.S. strategic goals: it denies China a cheap source of oil, supports U.S. refiners with suitable feedstock, and potentially funds the rebuilding of a post-authoritarian Venezuela under U.S. influence.
However, this strategy is not without risk or precedent. One analog being discussed in policy circles is Iraq in the 2000s – where after regime change, oil output rose but instability persisted. Venezuela’s oil industry has decayed severely: its refineries and upgraders are in disrepair, its workforce drained, and corruption endemic. As the investing firm SVB noted, any serious recovery is a “very long-term project” requiring not just money but governance changes.
In the meantime, the global heavy crude market (used for diesel, jet fuel, and industrial fuels) is tight. Losing 200–300 kbpd from Venezuela immediately removes some supply of heavy sour blends. With Canada’s output growth limited and Mexico’s Mayan crude in decline, heavy crude buyers have few alternatives. This has quietly put a bullish tint on certain refining margins – U.S. Gulf Coast refiners, ironically, may profit from a price premium on heavy grades even as they prepare to receive Venezuelan oil again.
In summary, Venezuela’s saga adds both upside and downside to oil markets: a near-term bullish supply shock tempered by a longer-term bearish capacity rebuild scenario. The coming months will reveal how quickly Washington can pivot from punitive blockade to managed output expansion in Venezuela – essentially turning a foe into a supply friend.
One of the most immediate humanitarian casualties of the Venezuela blockade is Cuba. The island nation of 11 million has for decades relied on Venezuela’s subsidized oil to power its economy. Now, with Maduro gone and U.S. warships choking off flows, Cuba faces an energy crisis of existential proportions. This has drawn in a third player – Mexico – creating a fraught triangle of Cuba, Mexico, and the U.S., with oil as the currency of influence.
Collapse of the Venezuelan Lifeline: Under the Chavez and Maduro governments, Cuba received oil shipments in exchange for sending doctors, teachers, and security personnel to Venezuela. At the peak of generosity in the late 2000s, Cuba got over 100,000 bpd. But in recent years those volumes fell sharply as Venezuela’s own production waned. By 2020, Cuba was receiving roughly 80,000 bpd from Venezuela. By 2023, that had dwindled to around 55,000 bpd – a ~30% drop as Venezuela struggled. In 2025, it slipped even further: Venezuela sent an average of just 9,528 bpd to Cuba, accounting for only 34% of Cuba’s imported crude. (Cuba produces some oil domestically – about 40,000 bpd of heavy sulfurous crude – but that mostly feeds power plants and cannot meet transportation needs.)
In practical terms, Venezuela’s collapse meant chronic fuel shortages and blackouts in Cuba throughout 2023–25. Rolling blackouts of 4–8 hours became commonplace in Havana and other cities. Gasoline and diesel lines stretched for blocks, with Cubans waiting days to get a few gallons. The Cuban government resorted to extreme conservation: cutting work hours, using oxen on farms in place of tractors, and mobilizing the population for energy-saving campaigns. All this before the latest crisis.
Now, with the U.S. blockade eliminating that remaining 10k barrels, Cuba is staring at a true nightmare scenario: a shortfall so severe it could bring daily life to a standstill. By some estimates, Cuba’s typical petroleum demand (to fully power its economy and grid) is on the order of 100,000 bpd. Entering 2026, it was making do with perhaps 50–60k (from Venezuela, Mexico, Russia, plus its own output) – hence the persistent blackouts and transit issues. Take away Venezuela’s ~35k (it had ticked up in late 2025 to that level, about a quarter of needs), and only a trickle remains.
As one Cuban resident told AP, “The blackouts are going to intensify with all this… we’ll be walking even more” due to lack of fuel. In short, Cuba is on the brink of total energy collapse: transportation, electricity, industry, all would grind down further. This outcome appears to be an intended feature, not a bug, of Trump’s hardline approach – energy scarcity as leverage to force regime change or concessions.
Mexico: The Reluctant Lifeline: Enter Mexico, Cuba’s longstanding friend. Even before the recent events, Mexico had quietly ramped up its oil assistance to Cuba to offset Venezuelan declines. In 2025, Mexico overtook Venezuela as Cuba’s top supplier of crude oil. According to industry data (cited by the Financial Times), Mexico supplied an average of 12,284 bpd to Cuba in 2025, about 44% of Cuba’s crude imports, while Venezuela provided 9,528 bpd (34%). Russia was a distant third with perhaps ~7,500 bpd (about 22%) mostly in refined products.
During the first 9 months of 2025, Mexican exports were even higher – about 19,200 bpd (17,200 of crude + 2,000 of refined products) according to Pemex filings with the U.S. SEC. This included a period in mid-2025 when Cuba was desperate due to power plant failures; Mexico stepped in with larger shipments (including a notable 400,000 barrel emergency delivery in Oct 2024 after major Cuban blackouts).
Mexico’s leftist President at the time, Andrés Manuel López Obrador (AMLO), authorized these shipments under a humanitarian banner. In fact, a Mexican NGO uncovered that Pemex effectively subsidized about $870 million worth of fuel to Cuba from mid-2023 to late 2024, eating the cost via a shadowy subsidiary (Gasolinas Bienestar). So Mexico was sending oil to Cuba at either zero cost or deferred payment, even as Pemex itself was struggling financially.
The new President Claudia Sheinbaum (AMLO’s successor from the same party) continued this policy, albeit cautiously. She publicly acknowledged that “with the current situation in Venezuela, Mexico has become an important supplier” to Cuba, but also insisted “no more oil is being sent than has been sent historically”. In other words, she’s arguing Mexico increased volume only because Venezuela decreased – trying to frame it not as Mexico taking sides, but simply fulfilling existing contracts and humanitarian obligations.
However, numbers don’t lie: Mexico’s 2025 exports to Cuba were 56% higher than in 2024. Without that bump, Cuba would already have been in the dark. Mexico essentially backfilled what Venezuela lost.
Diplomatic Collision Course: This Mexican lifeline has now put Mexico City on a direct collision course with Washington. President Trump has made clear he views any oil shipments to Cuba as defiance of U.S. policy. In private (and sometimes public) statements, he and his officials have linked this issue to broader U.S.-Mexico relations – hinting at repercussions in trade or border cooperation if Mexico doesn’t fall in line.
An example came in September 2025: U.S. Secretary of State (and Cuba hawk) Marco Rubio visited Mexico. Shortly thereafter, the monitored Mexican shipments to Cuba plunged to ~7,000 bpd from nearly three times that. This suggests Mexico temporarily dialed back under U.S. pressure. But after the Jan 3 Venezuela strike, Cuba’s need became dire again. Within days, tanker tracking websites noted a vessel (the Ocean Mariner) departing Mexico’s Tuxpan terminal bound for Havana. Mexico was again stepping into the breach, likely sending ~350,000 barrels in early January.
Sheinbaum is in a bind: domestically, supporting Cuba is popular with her base and aligns with Mexico’s independent foreign policy tradition. She also genuinely doesn’t want a refugee crisis if Cuba’s economy collapses (which could send waves of migrants towards Mexico and Florida). Yet Mexico also cannot afford a showdown with the U.S. – its economy depends on trade with America and goodwill on issues like immigration. Trump has previously proven willing to use tariff threats to coerce Mexico (as he did in 2019 over migration). There’s talk he could do so again, or worse, if infuriated.
Indeed, Trump’s statements in January have grown pointed: he criticized Mexico for not being a “constructive regional partner” and demanded all nations stop aiding Cuba’s “communist regime.” The Mexico News Daily reported that the Trump administration views Cuban oil aid as another pretext for escalating threats against Mexico.
We might be witnessing the early stages of an energy-based standoff: Mexico could reduce or pause shipments temporarily to appease Trump, but if Cuba starts collapsing (hospitals without power, etc.), the moral and political pressure on Mexico to resume aid will be huge. Each tanker Mexico sends now carries not just oil, but symbolic weight – it’s effectively Mexico thumbing its nose at the U.S. blockade, even as it denies doing so.
From Cuba’s perspective, officials are publicly stoic. Cuban President Miguel Díaz-Canel said Cuba “will not negotiate under coercion” and blasted the U.S. for “economic coercion”. Cuba is also turning to Russia and others for emergency help – indeed Russia had been sending around 7,500 bpd of oil to Cuba recently, and there are reports Cuba has asked for more fuel or credit lines from Moscow. But Russia’s bandwidth is limited due to its own sanctions and war needs.
Energy as Leverage – and Risk: The Cuba situation exemplifies how energy supply is being wielded as a geopolitical weapon in 2026. The U.S. is effectively trying to force regime change in Cuba by inducing energy famine. This is a high-stakes gambit; historically, when Cuba faced extreme hardship in the 1990s “Special Period” after the Soviet collapse, the regime still endured (albeit barely). Will today’s Cuban government survive if 2026 becomes an even darker version of that era?
For investors and analysts, one angle is potential U.S. secondary sanctions on Mexican entities if they keep supplying Cuba. Could the U.S. Treasury sanction Pemex trading arms or specific tankers? That would escalate things to an unprecedented level between NAFTA partners. Another angle: if Mexico bows and cuts off Cuba, Cuba’s economy could implode, leading to a mass migration event that destabilizes the region (and ironically, politically hurts the U.S. administration that caused it).
In the near term, Cuba will likely get by on a trickle of Mexican and Russian oil – not enough to avoid pain, but perhaps enough to stave off complete collapse. Blackouts of 12+ hours may become the norm, fuel rationing will tighten (perhaps only emergency services get gasoline), and economic output will further contract. Díaz-Canel may limp along hoping for a diplomatic breakthrough or a change in U.S. stance. Trump, however, appears in no mood for half measures, believing that squeezing Cuba now will yield a capitulation that eluded past presidents.
Ironically, what Cuba is enduring serves as a warning to others (like Iran) of how the U.S. can use energy as a pressure point. It also puts Mexico in the unwanted spotlight, potentially straining U.S.-Mexico cooperation on unrelated matters (like drug interdiction or immigration). The coming weeks will test Mexico’s resolve and creativity: can it continue to slip Cuba some oil quietly (perhaps swapping cargoes via third parties) without provoking Trump’s ire? Or will it have to publicly stand up to the U.S. and take the consequences?
Either way, Cuba’s fate is now tied to oil diplomacy. An island that was once an energy pawn in the Cold War (missiles in exchange for oil) is again at the nexus of great power machinations, underscoring that in geopolitics, as in physics, pressure applied at a critical point can yield explosive results.
While Venezuela faces an externally imposed reckoning, Iran’s oil sector is confronting a crisis from within. The Islamic Republic enters 2026 in a state of intensifying civil unrest that is beginning to unsettle oil operations and global markets. For Iran, this is a precarious moment: it spent the past two years cleverly evading U.S. sanctions and rebuilding oil output to multi-year highs – only to have domestic turmoil threaten those hard-won gains.
2025 – A Sanctions Defying Rebound: First, the context. Throughout 2023–2025, Iran managed a remarkable oil comeback despite U.S. sanctions (which were loosened somewhat during the Biden administration’s negotiations but never fully lifted). By late 2025, Iranian crude production had climbed back above 3 million barrels per day – some estimates put it around 3.4–3.5 million bpd, the highest since 2018. Exports surged even more dramatically: Iran was exporting roughly 2.0–2.3 million bpd in Q4 2025, according to tanker tracking, with over 90% of those barrels going to China.
How did they do this? Iran deployed a sophisticated “dark fleet” strategy similar to (and in coordination with) Venezuela and Russia: swapping oil between ships offshore, using ghost companies to hide the origin, blending Iranian oil into other crudes, and exploiting any legal gray areas. They also benefited from higher Chinese demand and China’s willingness to flout U.S. secondary sanctions. Iranian Oil Minister Javad Owji at one point boasted that Tehran had “neutralized the sanctions” – not an empty claim when you’re nearing pre-sanction export levels.
This stealth success meant that by end of 2025, Iran was supplying about 3% of global oil – not a huge share, but enough that any disruption there would jolt the market. And that’s exactly what started to happen as 2026 dawned.
The 2026 Eruption: In late December 2025 and into January 2026, mass protests erupted across Iran. Ostensibly triggered by a collapse in the currency (rial) and rolling water and power shortages, the unrest quickly took on an anti-regime tone, with chants against Supreme Leader Khamenei echoing those of past uprisings. By the second week of January, protests were reported in over 40 cities, including in the oil-rich Khuzestan province and key ports like Bandar Abbas. The regime’s response was brutal – as of Jan 9, at least 42 protesters had been killed according to human rights groups – and included near-total internet blackouts to hamper organizers.
Oil traders, already digesting the Venezuela news, now had to price in an Iranian risk premium. Brent crude jumped above $62 and kept climbing, logging the longest streak of weekly gains since mid-2025. For three days straight, oil prices rose as headlines out of Iran worsened. The reason is simple: Iran is OPEC’s 4th largest producer, and any loss of Iranian barrels would tighten global supply notably.
Two scenarios worry the market:
At present, the unrest has not yet significantly disrupted Iran’s oil flows – prior episodes (like the November 2019 protests or the 2022 Mahsa Amini protests) were massive but the oil kept flowing, as the regime prioritized security around energy infrastructure. However, the psychological impact on the market is pronounced. One gauge: the options market skew. As noted earlier, the cost of bullish crude options relative to bearish put options has surged; specifically, call options (bets on higher prices) for WTI are at their priciest since last July. Traders have scooped up $80 strike calls on Brent (currently ~$63), essentially insurance against a sharp price spike. These trades indicate growing fear of a large upside move – likely driven by Iran risk.
Another indicator: volatility. Implied volatility on oil futures has climbed, reflecting uncertainty. Meanwhile, the structure of the futures curve has shown some “backwardation” (prompt prices rising relative to later dates), hinting at near-term tightness concerns.
Iran’s leadership is trying to project confidence. It increased domestic fuel production to ensure no shortages at home (to avoid adding fuel – pun intended – to protesters’ anger). It’s also leaned on allies: Iran allegedly asked Russia and China to publicly warn the U.S. against exploiting the unrest. But privately, Tehran is surely worried that if its security forces can’t contain this, oil could become collateral damage.
Geopolitical Vulnerability: The intersection of Iran’s internal strife with global geopolitics is crucial. With the U.S. having just achieved regime change in Venezuela, hardliners in Tehran must be nervous. Supreme Leader Khamenei likely sees a Western hand (or at least hope) in these protests, though evidence suggests they are organically domestic-driven by economic grievances. Regardless, paranoia could lead to pre-emptive moves. Iran might, for example, threaten closure of the Strait of Hormuz (through which ~20% of world oil passes) to rally national sentiment against an external foe and distract from domestic issues. The mere threat, even if not executed, tends to add a few dollars to the price of oil.
Iran might also accelerate its nuclear program as a bargaining chip, calculating that advancing toward a bomb would deter the U.S./Israel from attacking during the unrest. But that could backfire, prompting exactly the kind of strike the market fears. It’s a dangerous game of brinkmanship.
Worth noting: OPEC and its partners are watching this closely. Officially, at their last meeting they decided to stick to planned output increases for early 2026 and then pause. They assumed a surplus situation. If Iran’s situation deteriorates, OPEC+ (especially the Saudis and Emiratis) might adjust strategy. They have spare capacity and could quietly fill a small Iran shortfall, but politically they might not mind a price spike either.
For now, the market’s base case is that Iran’s exports will continue, but the risk premium is back. This is a reversal from just a month ago, when Iranian barrels coming back were actually cited as a reason for oversupply and price weakness. For example, in mid-2025 the IEA kept warning of a 2026 glut partly because Iran was pumping more. Now, the IEA’s tone might shift to caution about stability.
Summing up, Iran’s oil future stands on a knife’s edge. The country heroically ramped up production under sanctions, only to have political crisis endanger it. If the regime stabilizes the situation in the coming weeks (through repression or concessions), oil prices could ease back as that premium melts away. If the unrest expands or is met with external fire, the world could suddenly lose a significant chunk of oil supply – throwing a wrench in the 2026 surplus story and potentially pushing Brent well above $70 despite otherwise soft fundamentals. Iran has become the oil market’s wildcard to watch, with impacts that could resonate from Beijing (higher import bills) to Brussels (scrambling for alternate barrels) to, of course, Texas, which would relish the higher prices but worry about global instability.
The narrative of early 2026 in oil markets is bifurcated: massive on-paper surplus vs. mounting real-world risks. It’s a paradoxical moment where spreadsheets and storage reports say one thing, but headlines scream another. Let’s unpack this, balancing the bearish data against the bullish geopolitics.
The Bearish Data – A Record Glut: If one simply looked at supply and demand projections, you’d assume oil prices would be sinking. The International Energy Agency (IEA) and other forecasters have been predicting an enormous oversupply in 2026. As of mid-December, the IEA pegged the expected 2026 surplus at about 3.8–4.0 million bpd – potentially the largest glut in modern history. This “wall of crude” comes from a few places:
No surprise then: major banks like Goldman Sachs have been forecasting Brent in the mid-$50s for 2026. The futures curve coming into the year was in contango (future prices higher than spot) reflecting that expected glut. In normal times, all this would argue for a significant bear market in oil.
The Bullish Reality – Geopolitical Wildcards: Against that backdrop, reality intrudes. The events described in this report – Venezuela’s blockade, Iran’s unrest, Cuba’s cutoff – all point to a return of the “risk premium” in oil pricing. Traders can no longer be short oil with impunity when a war, coup, or conflict could remove millions of barrels overnight. Let’s quantify these risks in terms of barrels:
Market Balancing – Pricing the Paradox: The result of this push-pull is likely heightened volatility rather than a clear trend. We might see a tug of war in prices: bearish forces capping rallies, bullish forces preventing a crash. For example, when Maduro was captured, oil prices initially barely moved because traders focused on the oversupply narrative. But as the Iran news hit, those same traders rapidly covered shorts and went long, sending prices higher. It’s a reminder that sentiment can turn on a dime.
One possible outcome is a two-tier market:
Refiners then face diverging conditions: those configured for heavy crude (e.g., on the U.S. Gulf Coast) might actually enjoy cheaper local heavy supply thanks to the U.S. bringing in Venezuela oil under the deal, while European refiners chasing sweet crude might see less pressure. But if Iran goes offline, it’s largely sour crude that’s lost – benefitting those with spare capacity who can produce it (Saudi/Kuwait).
From an investment standpoint, companies with exposure to geopolitical safe zones (like U.S. shale, Canadian oil sands) might be viewed as havens. Already we saw a pop in shares of Chevron, ConocoPhillips, Exxon when Venezuela news broke – the market assuming they’ll benefit long-term from access to those reserves or simply higher prices. Conversely, firms heavily invested in risky locales (some European traders, Chinese state companies) face uncertainties on volume and contracts.
One should also consider the macroeconomic feedback: if oil spikes due to geopolitical risk (say Brent jumps to $75 or $80 in a short span), that could rekindle inflation concerns, prompt more central bank tightening, and thus dampen economic growth and oil demand – a potential self-correcting mechanism.
Lastly, policy wildcard: the U.S. elections are later in 2026 (mid-terms) and Trump will be sensitive to gasoline prices. If his actions inadvertently cause a price spike, he might turn to the SPR release card again or pressure OPEC (though relations are currently strained). So there is an upper bound to how much the U.S. might tolerate price rises before taking countermeasures.
The oil market in 2026 is balancing on a knife’s edge between abundance and disruption. The phrase “Volatility is the new baseline” rings true – we’ve likely left the era of stable, low-risk supply-demand balance, and entered one where headline risk is back in play. For consumers and investors, it means to expect the unexpected: sudden price swings, policy interventions, and a premium on credible information.
One overarching insight: Energy security is back at the forefront. Nations and companies that secured stable, local sources (like the U.S. with Texas shale) are in a relatively strong position. Those reliant on far-flung imports find themselves at the mercy of events in Tehran, Caracas, or Havana. As one Texas oil executive quipped, “In a chaotic world, our barrels under American soil look pretty darn good.” The coming months will test just how much that Texas “fortress” can shield the market from storms abroad, and whether the much-anticipated glut of 2026 materializes or is overtaken by the very real risks of the Global Energy Matrix.
Bass Energy & Exploration is independently owned and operated by the Bass family.
Bass Energy & Exploration
7 NE 6th Street
Oklahoma City, OK 73104