The recent Iranian strike on a US military base has sent ripples through the global oil market, yet the immediate and longer-term price forecasts remain a complex interplay of geopolitical tension, strategic calculations, and existing market fundamentals. While initial reactions saw oil prices jump, the crucial question for analysts is whether this escalation will lead to sustained disruption or be absorbed by the broader market.
In the immediate aftermath of the strike, crude oil benchmarks like Brent and West Texas Intermediate (WTI) did indeed experience an uptick. This is a common pattern in the face of heightened geopolitical risk, particularly when the Middle East, a region central to global oil supply, is involved. The fear that such events could disrupt supply chains, directly impact production, or, most critically, lead to a closure of strategic chokepoints like the Strait of Hormuz, often triggers a swift, speculative premium. Indeed, some analyses suggest that a complete closure of the Strait of Hormuz, through which a significant portion of the world’s seaborne oil passes, could send prices soaring to $120-$130 per barrel, with even higher estimates pushing towards $139 if the conflict broadens dramatically.
However, the initial spikes often moderate as markets assess the actual impact and the likelihood of further escalation. In the current scenario, several factors are at play. While the attack itself was a significant development, the market’s subsequent reaction has been tempered by a hope that Iran will not retaliate in a manner that severely impedes global crude flow. Iran itself has a vested interest in maintaining its oil exports, primarily to China, as this revenue is vital for its economy. Therefore, any actions that completely shut down the Strait of Hormuz, while a potent threat, would also carry a heavy economic cost for Tehran.
Analysts are closely watching for any signs of direct targeting of oil infrastructure or major shipping routes. Should the conflict broaden to include such targets, or if there is a more significant reduction in Iranian oil exports due to intensified sanctions or other measures, the upward pressure on prices would undoubtedly strengthen. A scenario where Iranian oil exports cease could lead to a 4% reduction in global supply, potentially pushing Brent crude towards $90 per barrel through 2026. This would, in turn, contribute to higher global inflation and could influence central bank decisions on interest rates.
Historically, the relationship between geopolitical events and oil prices is not always straightforward or sustained. While major conflicts like the 1973 Arab-Israeli War or the Iraqi invasion of Kuwait in 1990 led to dramatic and prolonged price surges, other tensions have seen more transient effects. The market often prices in a “geopolitical risk premium,” which can fluctuate rapidly based on perceived threats. The current situation is also occurring within a global oil market that has seen robust supply growth from non-OPEC producers, and a longer-term trend of declining demand as the world moves towards energy transition. These underlying fundamentals can act as a dampener on extreme price movements.
Therefore, while the Iran attack on a US military base has certainly added a layer of geopolitical uncertainty to the oil market, the immediate forecast suggests a dynamic environment where prices are highly sensitive to further developments. The key will be the nature and intensity of any subsequent retaliatory actions, the extent to which major oil chokepoints are threatened, and the broader geopolitical calculus of the involved parties. For now, the market remains cautious, pricing in a degree of risk but holding back from a full-blown panic, awaiting the next move in this complex and volatile chess game.
Source: OGV Group
