Interview
How the US-Iran Deal Could Affect Oil Prices
- Markets currently price a recovery of Middle Eastern supply flows to normal levels by the end of July, contingent on export routes reaching roughly 70 percent of normal capacity through the Strait.
- Analysts plan to monitor vessel movements closely, particularly from Friday onwards following the expected signing of an MOU in Switzerland, to verify supply recovery.
- Market pricing reflects expectations for supply and production recovery, though full or sustained reopening of the Strait is not guaranteed, especially if nuclear discussions in the coming weeks and months fail to yield positive results.
- Low inventory levels and high supply disruption risks are expected to sustain a security premium, maintaining prices roughly $20 per barrel higher than pre-conflict levels.
- Baseline forecasts predict Brent at $80 per barrel and WTI at $75 per barrel by the end of the year, with long-term targets of $75 and $70 respectively for 2027.
- Global oil demand losses of approximately five percent are expected to mostly unwind, with 90 percent of the five million barrels per day loss recovering by 2027, though demand may remain 0.5 million barrels per day below a no-war counterfactual due to accelerated EV sales, particularly in China.
- An upside scenario involving gradual Gulf export recovery and a failure to fully reopen the Strait could push prices above $130 per barrel for approximately 18 months.
- A downside scenario characterized by a quicker Strait reopening and more persistent demand losses could result in Brent prices falling to $60 by 2027.
- The potential price upside error of $50 is considered significantly larger than the potential downside error of $20, with probabilities assigned as roughly equal to both scenarios.
- Future market conditions may involve more frequent large supply disruptions driven by geopolitical fragmentation and competition between the U.S. and China over power, AI, and commodities, alongside unpredictable resilience in managing such disruptions.