A month ago, an oil company executive told me that he was more worried about oversupply than the geopolitical risk being priced into markets. The experience of 2008–09 is a warning for many energy companies and may be one reason why they have held back from raising capital expenditure commitments and expanding investment plans.

The 2008–09 collapse reminds us how quickly prices can adjust, even if the geopolitical circumstances were different. By November 2008, monthly average WTI prices had more than halved from July. That collapse stemmed from an abrupt decline in demand. This month, the IEA revised its demand estimates down, but only slightly, while upgrading its outlook for 2027. However, an abrupt decline in geopolitical risk could provide a different catalyst. Slower demand growth following central bank rate hikes, combined with the removal of the geopolitical premium just as supply recovers, could affect prices faster than many expect.

The disappearance of that premium could expose a market in which recovering supply overwhelms an already weakened demand outlook.

November’s International Energy Agency report and OPEC’s production figures highlight this contradiction. Crude availability is improving rapidly, but delivering those barrels remains expensive and insecure. Consumers are paying for high security costs and tight refining capacity, even as the crude balance moves towards a surplus. The risk, therefore, is that investors mistake the price of geopolitical insecurity for evidence of lasting scarcity. The forward curve is certainly making many producers nervous.

The IEA reports that global supply increased by 5.3 million barrels per day between August and October, despite reports of attacks on energy infrastructure and tankers. OPEC’s estimates show OPEC+ members adding approximately two million barrels per day in October alone. Substantial volumes are returning. However, delivering those barrels entails large military and security costs.

Middle East-to-Asia crude freight rates have declined but remain near multiyear highs. High freight costs and changes in the quality of crude delivered therefore continue to squeeze Asian refining margins. Moving and processing available oil safely and economically is more challenging than it seems.

Security costs also extend beyond the quoted oil price. US maritime protection is expensive, and crude benchmarks do not capture that cost.

Barrels are returning, so we cannot describe the situation as one of destroyed supply. But security is not free. The Pentagon’s estimated cost of the broader Iran campaign had reached $47.1 billion. That spending is not entirely attributable to protecting oil shipments through Hormuz, but it illustrates the enormous military expenditure accompanying the recovery in Gulf flows.

The oil market’s supply recovery is expensive, but it is also very real. However, improving crude supply does not mean cheap fuel everywhere.

The cost remains evident in refined products. European diesel prices remained close to $180 per barrel, 77% above pre-war levels, even after declining from their recent peaks. Meanwhile, North Sea Dated crude had fallen to approximately $93.

Greater crude availability does not mean that product shortages have been fully resolved. Europe and Asia may therefore face expensive fuel for longer and suffer the economic consequences, while falling US gasoline and diesel prices may translate more quickly into savings for consumers.

The IEA expects world oil demand to fall by 2.7 million barrels per day in 2026. This is not a repeat of 2008, but a supply glut combined with the elimination of the geopolitical risk premium could drive prices much lower and support a stronger recovery in 2027. That helps explain why major oil companies remain reluctant to expand their investment plans.

Disruption raises delivered energy costs. Geopolitical risk drives prices higher. Those costs weaken consumption, and restored supply suddenly encounters a weaker customer. Who is going to increase capital expenditure under that scenario? The premium can disappear faster than production adjusts.

The IEA forecasts 2027 supply of 108.1 million barrels per day against demand of approximately 104.3 million, implying a surplus of 3.8 million barrels per day.

Onshore inventories may be recovering, according to the IEA, but they remain low, and replenishment could absorb substantial additional supply. Renewed attacks could reverse the recovery. The IEA itself considers maritime security the most important factor in its outlook.

The market’s mistake would be to confuse expensive security with persistent supply scarcity. Today’s oil price reflects the cost of a constrained and weakened system.

Who wins? US consumers may see a rapid reduction in oil and refined-product prices, while Asian and European customers may continue to bear elevated costs for at least two years. The issue is therefore not simply whether the oil sector follows procyclical investment strategies, but how outcomes diverge across the most important markets.

However, chronic underinvestment—estimated at $500 billion by J.P. Morgan—remains a burden on the oil and gas sector. So, what should we expect? Not a major capital expenditure boom. The pattern may resemble 2008–09: a sharp price decline as geopolitical risk recedes, followed by a rapid rebound towards a level acceptable to consumers and producers. That level may be closer to $70 than $80 per barrel for WTI.

Producers want geopolitical risk to fade so they can assess where prices will settle. The immediate benefit will probably be more visible to Americans than to Europeans. What happens when the dust of war settles, not a prolonged conflict, is what will determine whether businesses invest more.