Citi Sees Oil at $78/bbl if War Disrupts Iran Exports

An escalation of the Iran-Israeli hostilities could keep Brent oil prices trading about 15% to 20% above pre-conflict levels if the war disrupts 1.1 million barrels per day (bpd) of Iranian oil exports, according to analysts at Citibank.

"This implies Brent prices should be in the $75 to $78/bbl range," Citi said in a note. Prices had been hovering around $65 per barrel in May.

Brent crude futures were up $1.48, or 1.9%, to $78.18 a barrel by 1230 ET Thursday, while U.S. West Texas Intermediate crude for July was up $1.72, or 2.3%, at $76.86.

Separately, JP Morgan said last week that in the most extreme case of a broader regional conflagration that includes the closure of the Strait of Hormuz, it estimates that oil prices could surge to $120-$130 per barrel.

JP Morgan downplayed geopolitical concerns Thursday and maintained its base case forecast for oil prices to stay in the low-to-mid $60s through 2025 and $60 in 2026, but reiterated that certain worst-case scenarios could send prices surging to double those levels.

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The Iran-Israel conflict has raised fears of potential supply disruptions in the Middle East, a key oil-producing region, pushing crude prices higher as traders react to the growing geopolitical risk.

Iran is OPEC's third-largest producer, extracting about 3.3 million barrels per day (bpd) of crude oil.

According to Citi, a disruption of about 3 million bpd over a multi-month period could push prices to $90 bbl.

Any closure of the Strait of Hormuz could cause a sharp price spike, but Citi believes it would be brief as efforts would focus on a quick reopening.

Iranian oil export disruptions may have a smaller impact on oil prices than expected due to falling exports and reduced Chinese purchases as prices are higher now, it said.

"Production elsewhere globally may have risen sufficiently to offset the disruption impact, particularly if the production disruption was expected," Citi noted.

Increased supply from the Organization of the Petroleum Exporting Countries could also mitigate the impact of potential Iranian oil export disruptions, it added.

On Wednesday, Goldman Sachs noted that it estimates a geopolitical risk premium of around $10 per barrel following the rise in Brent prices to $76-77 per barrel, while Barclays said that if Iranian exports are reduced by half, crude prices could rise to $85 per barrel and that prices could move past $100 in the "worst-case" scenario of a wider conflagration.