Higher Prices for Longer?

Our short-term views remain that 1) oil prices will likely continue to trend higher
while Hormuz flows very remain low, 2) Brent is likely to exceed its 2008 all time
high if depressed flows keep the market focused on the risk of lengthier
disruptions, and 3) any rise in market perceived risks of US export restrictions is
likely to widen the Brent-WTl price gap further. This piece, however, considers
risks to long-term prices from the lran war beyond uncertainty around the timing
of Hormuz reopening in light of recent strikes on energy infrastructure. Oil supply
could be low for longer if production potential is damaged but higher if OPEC
deploys spare capacity after reopening.Apparent demand could be higher on
strategic stockpiling but weaker on demand destruction.

Risk 1 (Price upside): Low oil output for longer.Looking at the 5 prior largest
supply shocks of the past 50 years, we estimate an average hit to production of
42% after 4 years, often due to infrastructure damage and low investment. lran
and the 7 other Persian Gulf countries produced 3.5mb/d and 21.8mb/d of crude
in 2025 (together 30% of global crude).

Risk 2 (Limit upside): OPEC stabilization. OPEC could deploy substantial spare
capacity after the Strait reopens to help stabilize tight markets.

Risk 3 (Upside): Higher strategic stockpiling.The Hormuz shock and lingering
uncertainty may cause faster strategic stock building from 2027 because
end-2026 reserves will likely be low and because countries may raise SPR targets.

Risk 4 (Downside): Slower demand growth. High prices may slow demand by
accelerating fuel efficiency gains and shifts in other fuels and by slowing GDP.
Net upside price risks, Our scenario analysis suggests that the risks to oil prices
remain skewed to the upside on net both in the near-term and in 2027. The
persistence of several prior large supply shocks underscores the risk that oil
prices may stay above $100 for longer in risk scenarios with lengthier disruptions
and large persistent supply losses.