Amid the escalating conflict between Iran and the US-led coalition, Standard Chartered (StanChart) has revised its oil price forecasts, citing the potential for significant disruptions to global energy markets. The bank now predicts Brent crude to average $74 per barrel in the first quarter of 2026, a notable increase from its previous forecast of $62 per barrel. This upward revision reflects the broader implications of Iran's retaliatory actions, which have created multiple regional flashpoints, posing a real threat to oil supply flows.
The Strait of Hormuz, a critical transit route for approximately 31% of seaborne crude and condensate, primarily destined for China and India, remains the most concerning area. This waterway is also crucial for 19% of LNG, 19% of jet fuel and kerosene, and 33% of global fertilizer transit. The risk to vessels from mines or missiles has led to increased insurance premiums and supertanker shipping costs, with freight rates from the Middle East to China now exceeding $400,000 per day, double the rate from just a month ago. This has made it uneconomical for most companies to operate in this region.
Iraq, heavily reliant on transit through the Strait of Hormuz, is facing significant challenges. The country has begun shutting down major oil fields and reducing production due to storage tanks reaching capacity. Saudi Arabia and the UAE have pipelines with spare capacity, estimated at 2.6 million barrels per day, which could be used to redirect exports. However, alternative routes for refined products and LNG are more limited, with natural gas prices spiking after QatarEnergy declared force majeure on LNG deliveries, taking about 20% of global LNG production offline.
While no barrels have been lost so far, the risk to vessels and the increased costs are already impacting the market. StanChart notes that the conflict has the potential to escalate further, posing asymmetric upside risk to the forecasts if production from Iran and regional producers is impaired. This could trigger a rise in landed crude costs, even if the flat price stabilizes, if the freight premium is retained for prolonged periods of time.
In conclusion, the conflict in the Middle East is creating significant uncertainty in the oil market, with potential for both supply disruptions and increased costs. The situation remains fluid, and further developments could have a substantial impact on global energy prices.
