Oil surge offers Nigeria no respite – Rystad Energy

Despite escalating military tensions between Israel and Iran, global oil prices are unlikely to surge beyond $80 per barrel, according to analysts at Rystad Energy. While markets remain jittery over potential supply disruptions, key factors, including diplomatic efforts, OPEC+ spare capacity, and restrained conflict escalation, are expected to keep crude prices in check.

Impact on prices

The recent exchange of attacks between Israel and Iran sent Brent crude prices spiking to $78 per barrel before settling near $74, reflecting market uncertainty.

However, Rystad Energy’s experts argue that the conflict is likely to remain contained, preventing a prolonged oil price surge.

Mukesh Sahdev, global head of commodities markets – Oil at Rystad Energy, noted:
“Oil markets are heading into a peak demand period in the US and will be looking for signs of stabilisation rather than further escalation. For now, the conflict appears likely to be contained, with the US potentially playing a central role, alongside significant diplomatic efforts from key players in the Middle East.”

Sahdev added that Iran may be nearing a deal, further reducing the risk of prolonged disruptions. Based on Rystad’s disruption simulations, oil prices are expected to remain capped below $80 per barrel.

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Strait of Hormuz: The Key Risk

The biggest threat to oil markets would be a potential closure of the Strait of Hormuz, a critical chokepoint through which 21 million barrels per day (bpd) of crude and petroleum products flow, about 21 percent of global supply.

Janiv Shah, vice president of commodities markets Oil at Rystad, warned:
“A blockade remains the key risk that could push markets into uncharted territory. So far, the Strait has not been targeted, but if it is, we could see prices spike sharply.”

However, Shah emphasised that the U.S. has a strong incentive to prevent such a scenario, given its interest in keeping oil prices stable. The Biden administration has previously intervened to calm markets, and similar efforts are expected if tensions escalate further.

Why Oil Prices Won’t Skyrocket

Limited Supply Disruptions So Far

While Iran, Iraq, Saudi Arabia, and other Gulf producers account for 25 million bpd of output, only a fraction is at immediate risk. Rystad estimates that a 1 million bpd disruption could push prices toward $80, while a 2 million bpd cut might briefly send Brent to $90. However, sustained triple-digit prices remain unlikely.

OPEC+ spare capacity can cushion shocks

OPEC+ holds 3-6 million bpd of spare capacity, which could be deployed to offset supply losses. Saudi Arabia and the UAE can ramp up production quickly if needed.

Read also: Oil prices up 3% after Trump declares pause on most tariffs but higher tariff on China – Reuters

Demand impact is minimal

The Middle East accounts for just 10 percent of global oil demand, meaning the conflict’s direct demand impact is limited. Higher prices could dampen consumption, but the bigger risk lies in supply logistics, particularly if Hormuz is blocked.

Alternative trade routes exist

If the Strait of Hormuz is compromised, Saudi Arabia could reroute crude via its East-West Pipeline, while the UAE may utilise the Habshan-Fujairah pipeline. Iraq’s underused Turkey pipeline could also see increased flows.

Gas and LNG Markets: Limited Fallout

Iran’s South Pars gas field, which it shares with Qatar, was recently attacked. However, since Iran does not export LNG, the immediate impact on global gas markets is minimal.

The bigger risk is to Qatar’s LNG exports, which account for 20 percent of global LNG trade and transit through Hormuz. If shipments are disrupted, European and Asian buyers could face shortages, driving up spot prices.