US-Iran Conflicts and Oil Market Volatility: A Structural VAR Analysis of Supply and Price Effects, 1979-2025

This study examines the impact of US-Iran conflicts on global oil market volatility between 1979M1 and 2025M8. Using annual dataset and a Structural Vector Autoregression (SVAR) model, we estimate the dynamic effects of US-Iran escalation index on Brent crude price and world oil production. Results show that a positive shock of US-Iran tensions increases oil prices by 0.48% significantly in the short-run and significantly reduces world supply by 0.06%. Impulse responses revealed that price effects peak in year 2 and persist for 6 years, while supply recovers in 5 years through OPEC spare capacity and US shale. Variance decomposition indicates that US-Iran conflicts explain 19% of oil price variation, while demand explains 36.5% of the variation. The findings support Geopolitical Risk Theory and highlight the need for diplomatic de-escalation and strategic reserve.

Keywords: Geopolitical Risk, Oil Price, Oil Supply, SVAR, Volatility.