Oil markets are balancing escalating geopolitical risks against structural oversupply as tensions involving the US, Israel and Iran continue, with price scenarios ranging from a return to $60 per barrel to a spike toward $120 if disruptions intensify.
Homayoun Falakshahi, head of crude oil analysis at Kpler, told Anadolu that traders have so far shown a tendency to "sell the geopolitical event," despite the sustained and widespread nature of recent attacks, including those targeting oil-related infrastructure.
"With no oilfield directly hit for now, this fading behavior may have dampened the aftermath of the market open," he noted.
Falakshahi said muted price reactions were reinforced by the decision of the OPEC+ alliance to raise output more than previously expected starting in April, deepening what he described as an already structurally oversupplied market.
In a meeting on Sunday, eight members of the OPEC+ group agreed to raise oil production by 206,000 barrels per day (bpd) in April, following a pause in output increases between January and March 2026 due to seasonal factors.
He added that China's aggressive build-up of strategic stockpiles also provides a buffer. "China has aggressively built up massive strategic stockpiles specifically to buffer against this type of supply shock and could draw down on inventories very readily."
Under Kpler's base-case scenario, the conflict will not last more than a few weeks, with most of the geopolitical risk premium fading once hostilities end or decline in intensity.
"Given we are in a relatively oversupplied market (estimate is around 1.7 million barrels per day oversupply through 2026), Brent prices will return to the $60 per barrel range fast. Our base case has prices staying around $75 per barrel through March but coming down fast, and averaging $65/bbl over the following 11 months," Falakshahi explained.
- Strait of Hormuz remains focal point for volatility
Falakshahi identified developments in the Strait of Hormuz as the key driver of current oil price volatility.
Oil tanker traffic through the Strait of Hormuz has sharply declined as rising security risks brought transits close to a standstill, leaving more than 700 vessels clustered on both sides of the key chokepoint.
The collapse in flows is primarily precautionary and shipowners are stepping back voluntarily, and insurance premiums have surged, Falakshahi noted.
He argued that Iran lacks the naval capacity to sustain a full physical blockade for an extended period, given its weakened fleet and finite missile inventories. However, he stressed that a permanent blockade is not necessary to disrupt flows.
"Credible threats alone are sufficient to suppress transit," he said. "As long as a functioning leadership remains in place, Iran’s strategy is likely to mirror that of the Houthis in recent years — sporadic attacks that keep commercial traffic effectively frozen without continuous escalation."
He added that US military superiority will likely neutralize most of Iran's combat-ready capabilities in the coming days, paving the way for a gradual recovery in flows — though not an immediate normalization, as shipowners will remain cautious.
"If the conflict drags on and the Strait of Hormuz remains closed for weeks, prices will bounce toward $120 per barrel until the strait is reopened," he warned.
By Ebru Sengul Cevrioglu
Anadolu Agency
energy@aa.com.tr
