Key Takeaways
- Brent crude has remained above USD 100 since the Iran conflict began, with analysts expecting prices to stay well above prewar levels.
- Even in a continued ceasefire scenario, oil prices are seen staying high.
- Some analysts see oil prices remaining high even beyond a resolution of the immediate conflict.
Oil prices may nosedive whenever US President Donald Trump signals optimism on the Iran war, but analysts say crude oil is expected to remain well above its prewar pricing for the foreseeable future.
With the conflict involving Iran continuing into its eleventh week, Brent crude has been holding above USD 100 per barrel, up from USD 70 before the war started. At its peak during the conflict, Brent briefly traded north of USD 120.
For what comes next, analysts and fund managers are working with several scenarios. Brent crude oil prices could keep hovering between USD 100 and USD 120 if Strait of Hormuz shipping remains partially disrupted and diplomatic talks continue; they could rise above USD 125 if the conflict widens and the Hormuz blockade is prolonged, or—with a credible ceasefire and reopening of shipping lanes—retreat back below USD 90 within two or three months following the full resumption of flows.
The fundamental issue is the historic reduction in the amount of oil reaching the market since the Iran war started. According to the latest IEA Oil Market Report, global crude and refined product inventories fell at a rate of nearly 4 million barrels per day in April, equivalent to the combined daily consumption of the UK and Germany. Global oil inventories have dropped by nearly 250 million barrels since the outbreak of the war.
The front-burner question for investors is also an unknowable one: How long will the Strait of Hormuz be closed? While the waterway is closed, the two key factors driving oil prices are available supply and the potential for demand destruction caused by the impact of higher prices. Then, whenever the Strait is reopened, the calculus is around how long it will take to ramp currently-shuttered production back up and deliver the crude to refineries around the world.
Analysts say the war’s impact could be felt for some time in the form of sustained higher oil prices.
“Whatever the outcome of the conflict, we strongly believe that these events have raised the long-term floor for oil prices in all scenarios except one—the scenario in which Iran becomes a Western-oriented country—an outcome we consider unlikely,” says Malcolm Melville, a commodity fund manager at Schroders.
“The Strait of Hormuz, effectively closed, keeps about 20% of global oil and gas production out of the market,” says Ricardo Evangelista, senior analyst at ActivTrades.
The War Turned Oil Price Dynamics on Their Head
Before the war erupted, the dominant narrative was not scarcity but the risk of oversupply. Brent crude had spent much of the year trading between USD 70 and USD 85 per barrel, pressured by concerns over slowing global growth, weak Chinese demand, and expectations of rising non-OPEC supply.
OPEC was still maintaining production cuts to support prices, but compliance concerns and soft demand growth had limited the market impact of those measures. Inventories in major consuming regions remained relatively comfortable, helping keep swings in oil prices relatively muted.
The closure of the Strait of Hormuz radically changed the equation for oil. The current disruption is considered the largest energy supply shock in recent history.
From Geopolitical Risk to Physical Shortage
“The market is already facing a genuine physical shortage,” says Kerstin Hottner, head of commodities at Vontobel. According to Hottner, around 13 million barrels per day of Middle Eastern production are currently offline, a shock that is progressively eroding global inventories.
“This shortfall is already translating into physical shortages in parts of Asia, with shortages already affecting countries such as Vietnam, Pakistan and Bangladesh, while Europe has so far avoided outright scarcity thanks to relatively high inventories and coordinated strategic reserve releases,” she says.
Maurizio Mazziero, an independent commodities analyst based in Italy, says the market is already experiencing early signs of demand destruction caused by high prices and constrained availability. According to the International Energy Agency, global oil demand is forecast to contract by 420 mb/d (thousand barrels per day) year-on-year in 2026, 1.3 mb/d less than the prewar forecast, with the petrochemical and aviation sectors currently most affected.
At this stage, analysts agree that three broad scenarios appear most plausible.
Scenario 1: ‘Controlled Crisis’ Keeps Oil Prices Where They Are
The current market’s base case sees a “controlled crisis,” with oil prices between USD 100 and USD 120. The Strait of Hormuz remains partially disrupted, diplomatic talks continue intermittently, inventories keep falling but strategic reserves prevent outright panic.
“In this context, Brent prices are expected to remain above USD 100, with traders continuing to focus on the progress of diplomatic talks between the United States and Iran, as the hopes and setbacks generated by these negotiations remain, for now, the main drivers of oil prices,” says ActivTrades’ Evangelista.
“As long as the Strait of Hormuz remains closed, I expect oil prices to gradually trend higher on a daily basis, potentially reaching USD 120 to USD 125 per barrel as inventories continue to decline,” Vontobel’s Hottner says.
Scenario 2: Escalating Conflict Triggers Even Worse Oil Shortages
With an escalation, oil prices would spike above USD 125. A direct widening of the conflict—attacks on energy infrastructure, or a prolonged total blockade of the Gulf—could rapidly trigger physical shortages in Europe and force demand destruction through much higher prices.
Even in such a scenario, however, Kerstin Hottner does not yet expect an explosive move toward USD 150 or higher, arguing that such levels would be accompanied by a much more severe collapse in demand and widespread global rationing.
Scenario 3: A Ceasefire Sends Oil Prices Lower
Finally, a credible ceasefire and reopening of shipping lanes could produce a sharp short-term correction in prices, with Brent back below USD 90, according to Maurizio Mazziero.
However, even if the Strait of Hormuz were fully reopened tomorrow, most analysts expect it would take weeks to several months for global oil flows to normalize.
Why Prices Could Stay Higher for Longer
The resulting consensus baseline is that oil prices are likely to remain elevated over the coming months.
According to Goldman Sachs’s commodity strategists, Gulf production is set to mostly recover within a few months of the Strait’s reopening, assuming no renewed strikes on oil assets and a full and safe reopening of the Strait in coming months. At the same time, they see “significant risks that the last leg of the recovery will take significantly longer and may not fully materialize, especially if the Strait were to remain closed for much longer.”
Goldman’s baseline assumption sees a normalization in Gulf energy exports by end-June, with oil prices stable in the near term and edging down to USD 90 per barrel by the end of the year. While that’s a decline from current levels, it remains much higher than previous estimates: Just before the war started, the investment bank had forecast a Brent crude price of USD 66 in the fourth quarter. A month later, in March, Goldman then raised its forecast to USD 71.
According to Maurizio Mazziero, “even with a lasting ceasefire, prices would likely remain well above prewar levels for at least six months, given that restoring damaged facilities and clearing the shipping bottleneck will not happen immediately.”
Besides, after the Strait reopens, governments and refiners are likely to rebuild strategic reserves aggressively in order to avoid future vulnerabilities. According to Hottner, this restocking cycle could become a major structural support for oil prices over the next 12 to 18 months.
“In the long term, the conflict has highlighted both the vulnerability of the energy system and the lack of strategic reserves in many countries,” says Schroders’ Melville.
