Oil prices stabilised following their largest drop since June, as reports emerged that the United States would postpone military action against Iran. The recovery came after significant market volatility driven by geopolitical tensions in the Middle East.

Price Recovery After Sharp Decline

Crude oil benchmarks showed signs of stabilisation after Thursday's steep losses. The following table shows the current price levels:

According to reports from the New York Times, Israeli Prime Minister Benjamin Netanyahu requested that President Donald Trump postpone plans to attack Iran. This development reduced immediate concerns about potential disruptions to oil production and shipping in the region.

Military Developments and Market Impact

Despite the postponement of immediate military action, Washington continues to increase its military presence in the Middle East. At least one aircraft carrier is currently en route to the region, with additional military equipment expected to be deployed in the coming days.

The reduced likelihood of immediate US retaliation against Iran has eased concerns about potential disruptions to the Islamic Republic's oil infrastructure. Iran represents OPEC's fourth-largest producer, with more than 3 million barrels per day of production at risk.

Regional Supply Concerns

Beyond Iran, other regional developments continue to influence oil markets:

• Venezuela Operations: Trafigura Group is set to discharge its first oil cargo from the Latin American nation in storage facilities in Curaçao as part of US government efforts to market the barrels
• Caribbean Enforcement: US forces seized a sixth oil tanker near Venezuela as part of increased pressure on the use of sanctioned ships
• Kazakh Exports: Disruptions to Kazakh exports from the Black Sea have also contributed to price support

Weekly Performance Outlook

Oil prices are set to end the week with minimal change after surging from January 8 on concerns about potential US targeting of Iran. The market volatility reflects ongoing geopolitical tensions and supply disruption risks in key producing regions.

The current price levels come after oil experienced its worst year since 2020, as output gains threatened to outpace sluggish demand growth. However, recent geopolitical developments and supply disruptions in Venezuela and Kazakhstan have provided support to prices in early trading sessions.

Recent developments in Russia-India oil trade have exposed significant limitations in the effectiveness of international economic sanctions. Despite the United States imposing 500% duties on entities dealing with Russian oil, trade between the two nations continues through regulatory loopholes. According to reports, as long as major Russian oil companies Rosneft and Lukoil are not directly involved, Russia can continue exporting oil to India, leading to the emergence of numerous small companies facilitating these transactions.

Effectiveness of Economic Sanctions

Research on sanctions effectiveness reveals sobering statistics about their success rates. Strict sanctions demonstrate success less than 10% of the time, while broader definitions of success show effectiveness rates of approximately one-third. The common perception that sanctions lead to complete trade stoppage represents a significant misconception, even among sanctioning countries.

Despite economic pressure, sanctions often fail to achieve their intended behavioral changes. Countries like Iran continue accessing Western goods through intermediary nations such as Turkey and Gulf states. Russia's economy surprised analysts in 2024 when the International Monetary Fund projected it would outpace some advanced countries, creating embarrassment for Western policymakers.

Secondary Sanctions and Systemic Risks

When primary sanctions prove insufficient, countries implement secondary sanctions targeting third parties that trade with sanctioned entities. The United States leverages its dominance over the dollar and global financial system to determine market participation. Major banks, insurers, and multinational companies cease business with sanctioned entities, creating pressure on entire industries.

However, aggressive use of secondary sanctions carries significant costs. Excessive implementation damages trust in the global financial system, prompting even allied nations to seek protective measures including alternative currencies, independent payment systems, and increased bilateral trade arrangements.

Adaptation and Workarounds

Sanctioned entities demonstrate remarkable adaptability in circumventing restrictions. When Western nations sanctioned VTB Bank and removed it from SWIFT in 2022, the institution adapted by enabling transfers through Chinese platforms like Alipay, successfully bypassing international restrictions and maintaining customer fund transfers.

Russia's shadow fleet operations exemplify how sanctions disrupt formal networks while shifting economic activity into less transparent channels. These adaptations highlight the limitations of traditional enforcement mechanisms.

Political and Economic Realities

Sanctions serve multiple purposes beyond behavioral modification. They function as diplomatic signals, demonstrate financial control, and communicate disapproval to domestic audiences. Freezing assets or removing banks from SWIFT often prioritizes message-sending over actual policy change expectations.

The effectiveness of sanctions depends on specific conditions including narrow, negotiable objectives, strong international coalitions, and strict enforcement mechanisms. Sanctions typically limit capabilities rather than forcing surrender or fundamental behavioral changes. Expectations that sanctions will end conflicts or topple regimes often prove unrealistic and may undermine genuine diplomatic efforts.

Impact Assessment

While sanctions can cause measurable economic damage, their success in changing government behavior remains limited, particularly with authoritarian regimes capable of suppressing dissent. The civilian population often bears the greatest burden of sanctions impact, while targeted leadership may remain relatively insulated from economic pressure.

The ongoing Russia-India oil trade demonstrates how determined parties can maintain commercial relationships despite international pressure, raising fundamental questions about the role of economic sanctions in modern diplomacy and their effectiveness as tools for international behavioral modification.