Oil has once again crossed the symbolic threshold of $100 per barrel, reviving memories of previous geopolitical shocks that sent energy markets into turmoil. The immediate explanation is familiar: rising tensions in the Middle East, concerns over shipping routes, and fears that global oil supplies could be disrupted. Yet the more important question is not why prices have surged today, but how markets will behave tomorrow. The answer may be very different from what investors witnessed only a few months ago.

When geopolitical tensions first escalated, oil prices rose rapidly as traders priced in the possibility of supply disruptions. Later, optimism returned after diplomatic efforts suggested that a broader conflict might be avoided. Prices retreated as markets assumed that the worst-case scenario had been taken off the table. That optimism, however, proved to be short-lived. Renewed instability has demonstrated that earlier diplomatic understandings were unable to deliver lasting security. As a result, the market's perception of geopolitical risk has fundamentally changed.

Financial markets are driven not only by events but also by confidence. Once confidence is damaged, it takes considerably longer to rebuild than to lose. This psychological shift may become the defining feature of the current oil cycle. Even if a comprehensive peace agreement were reached tomorrow, traders may no longer respond with the same optimism seen during previous rounds of diplomacy. Instead of immediately removing the geopolitical risk premium from oil prices, markets........

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