100 Days into the War: Where Are Oil Prices Headed?

SadaNews - After 100 days since the outbreak of the war against Iran, energy analysts are faced with the dilemma of assessing the real gap in oil markets in an attempt to predict price directions should the near-total disruption of navigation in the Strait of Hormuz continue.

Markets have lost a fifth of their oil supply due to the crisis, approximately 20 million barrels, marking the largest disruption ever recorded; nonetheless, Brent crude prices have remained below the $120 per barrel mark. For context, this figure is far from the record levels reached in July 2008 when prices hit $147 per barrel due to speculation and the widening gap between demand growth in Asia and stagnant supply, which is equivalent to $210 today when adjusted for inflation.

This gap – between the scale of the shock and price adjustments – has become the focus of discussion between two prominent camps: the first predicts prices will rise to $150 per barrel if navigation disruptions in the Gulf persist, while the second expects the markets to adapt to the new situation, provided that attacks and military operations do not expand.

Oil prices will hold extreme importance in the upcoming phase of the conflict, as their stability may alleviate domestic political pressure on U.S. President Donald Trump to reach an agreement to reopen the Strait quickly and at any cost. Conversely, rising to levels nearing $150 per barrel might increase the likelihood of a global economic recession.

The First School: Prices May Reach $150

The first school of thought argues that prices have remained suppressed by temporary support mechanisms, and that the market will face – once these are exhausted – a gap that cannot be concealed. The clearest articulation of this analysis comes from the Brookings Institution in Washington, which described the current situation in a study at the end of May as a race between the durability of those supports and the market's expectations for the duration of the Strait's closure.

Among the key supports for the market currently:

Pipelines that bypass the Strait of Hormuz: the Saudi "East–West" pipeline to the port of Yanbu on the Red Sea, and the UAE pipeline to Fujairah, on the Gulf of Oman, which compensated for the loss of exports by about 5 million barrels per day for the former and 1.5 million barrels per day for the latter.

Rising production from the United States, Kazakhstan, Guyana, and Brazil.

Emergency stocks held by International Energy Agency members.

Russian-Iranian crude stored at sea since the outbreak of war.

Government directives to reduce energy consumption, especially in Asian countries reliant on Gulf oil.

Decreased fuel consumption due to high prices.

By Mid-July

These supports collectively moderated the shock's impact; however, inventories of all types will be depleted if the crisis continues. The Brookings Institution estimates that by mid-July, reserves may be largely exhausted, leaving a gap estimated at 7 million barrels per day that prices must absorb, which could approach $150 once the markets conclude that temporary market supports have been depleted.

This view is supported by Amos Hochstein, former energy advisor during U.S. President Joe Biden's administration. Hochstein stated in comments to Bloomberg TV on June 4 that he does not believe Trump's remarks that the U.S. blockade on the Strait of Hormuz could last until September, adding: "All reserves are diminishing at historic levels, and they are not quickly renewable."

Hochstein anticipates that reserves will reach a critical level by mid-July, a timeframe in which he expects the U.S. administration to attempt to reach an agreement.

The Second School: The New Normal

The second school reads price discipline as an indication that the market has adapted to developments, and that the longer the disturbance lasts, the closer the current situation becomes to normal, rather than urgent.

On the demand side, consumption quietly erodes amid a wave of austerity in Asia, which suffers due to reliance on Gulf oil. Governments in Pakistan, the Philippines, and Sri Lanka have resorted to implementing a four-day workweek. In Europe, some governments, including Germany, Italy, and Spain, have reduced energy taxes to protect consumers from rising prices.

The International Energy Agency reported a drop in global refinery throughput of about 5 million barrels per day on a year-on-year basis in April, with global oil demand expected to shrink by 420,000 barrels per day in 2026 compared to last year.

On the supply side, additional barrels continue to find their way to the market. U.S. and Kazakh production is close to record levels, and Russian crude is flowing despite recent price declines. JPMorgan Bank indicates that 1 million barrels of oil continue to flow through the Strait of Hormuz despite the crisis.

In this context, Kate Dorian, an energy specialist at the "MEES" newsletter, ruled out that "things will return to the way they were even if the Strait is reopened, due to the precedent set by the crisis, as it may be closed again, prompting Gulf Arab countries to build additional bypass routes," including the new Emirati pipeline that will double Abu Dhabi's exports from the Gulf of Oman once completed in 2027.

$210 in the Event of War Resumption and Extension to Energy Facilities

There is, of course, a darker scenario for the oil market where the war resumes and causes severe damage to regional energy infrastructure. In this scenario, prices may initially rise to $210 per barrel before stabilizing at $150 until 2028, according to an assessment by the British government reviewed by Bloomberg.

According to the same report, crude prices could remain between $100 and $150 per barrel even if an agreement is reached between the United States and Iran this year, due to the slow recovery of flows from the Gulf, remaining close to $100 per barrel until 2028.