Author: Miscellaneous Talks on Seeing the Big Picture from Small Details

The renewed conflict between the US and Iran has triggered a strong rally in crude oil and precious metals. The recent oil price increase primarily reflects a geopolitical risk premium rather than actual tight spot supply.

Market signals are diverging: futures prices, freight rates, and risk reversal option prices are rising due to risk concerns, while futures contract spreads (calendar spreads) and physical crude oil spreads, which reflect immediate supply and demand, are weakening. MS analyzed four potential scenarios.

Scene Analysis

• Basic Scenario: The possibility of a continued closure of the Strait of Hormuz as the core scenario is ruled out, as this has an extremely high threshold and a very low probability. The analytical framework focuses on a range of possibilities, from easing tensions to limited friction.

Scenario 1 (No supply disruptions): The situation eases, and the risk premium recedes. The risk premium of approximately $7-9/barrel is expected to disappear quickly, and Brent crude oil prices may fall back to the lower end of $60/barrel.

Scenario 2 (Limited Strike and Short-Term Logistics Disturbances): Targeted military action occurs, but energy infrastructure is avoided. This could lead to a supply disruption of 0-0.5 million barrels per day for 1-3 weeks. Oil prices may briefly surge to the mid-to-high range of $70, but China's slowdown in strategic reserve accumulation will become a key balancing mechanism, after which oil prices will return to the mid-to-low range of $60.

Scenario 3 (Partial Disruption of Iranian Exports): A broader strike leads to a partial disruption of the Iranian export chain, but does not affect shipping through the Strait of Hormuz. This could result in a supply disruption of 0.8-1.5 million barrels per day for 4-10 weeks. Price movements would fall between Scenario 2 and Scenario 4.

Scenario 4 (Fleet Efficiency Shock and Shipping Damage): Tail Risk. Iran's maritime countermeasures, such as harassing vessels, lead to decreased shipping efficiency and increased delays. This equates to an "effective supply shortage" of 2-3 million barrels per day for several weeks, potentially resulting in a price surge similar to that of early 2022, but for a shorter duration.

Scenario 1 (No Supply Disruptions): The situation eases, and the risk premium diminishes. The risk premium of approximately $7-9/barrel is expected to disappear quickly, and Brent crude prices may fall back to the low to mid-range of $60/barrel. (Significant Probability)

The first scenario, "No Supply Disruption: Easing of Tensions and Reduction of Risk Premiums," is considered a highly probable reference scenario. Its core assumption is that the current significant US military presence in the Middle East, combined with diplomatic pressure, is sufficient to prompt Iran to make negotiating adjustments on its nuclear issue, thereby avoiding direct military conflict. In this scenario, military threats primarily serve as leverage rather than a prelude to actual action; sanctions enforcement may remain strict but will not impose additional restrictions that substantially alter current Iranian export flows.

Therefore, this scenario has no impact on the physical supply of crude oil: Iranian exports remain largely at near-term levels, and regional transport through the Strait of Hormuz remains unimpeded. Its main impact on the market is that the geopolitical risk premium currently embedded in the front-end price of crude oil will disappear. Based on regression analysis of OECD commercial inventories and the Brent crude oil M1-M4 calendar spread (i.e., the spread between near-term and far-term contracts) over the past 25 years, the report points out that current inventory levels should correspond to a flat or even slightly contango market structure, rather than an actual backwardation. Currently, the Brent M1-M4 spread is approximately $1.75 per barrel, and if the market clearly recognizes that there will be no physical supply disruptions, this spread could fall back to the level implied by the regression analysis (close to zero).

This means that if the front end of the crude oil futures curve turns into a contango while forward prices remain stable, then the front-end (spot) Brent crude price could fall from its current level of around $70/barrel to the lower-middle range of $60/barrel. Based on this estimate, a geopolitical risk premium of approximately $7 to $9 per barrel could recede relatively quickly in a scenario of de-escalation. Most price adjustments are likely to occur within days to weeks, rather than months, especially when market participants are confident that regional supply and transportation flows will remain uninterrupted.

The report uses the market performance following the Iran-Israel conflict in June 2025 as a precedent, pointing out that oil prices, which surged due to escalating concerns, quickly returned to pre-conflict levels within weeks after it was confirmed that energy infrastructure and transportation were not substantially affected. This demonstrates that risk premiums can be established and dissipated very rapidly when physical supply remains unaffected. Ultimately, volatility will compress, and the dominant factor in market pricing will shift from geopolitical risks to the fundamentals of physical supply and demand.

Scenario 2 (Limited Strike and Short-Term Logistical Disturbances): Targeted military action occurs, but energy infrastructure is avoided. This could lead to a supply disruption of 0-0.5 million barrels per day for 1-3 weeks. Oil prices may briefly surge to the mid-to-high range of $70, but China's slowdown in strategic reserve accumulation will become a key balancing mechanism, after which oil prices will return to the mid-to-low range of $60. (Significant Probability)

The second scenario, "limited strike and short-term logistical friction," describes a highly probable trajectory. This scenario assumes a targeted military strike by the United States, deliberately circumventing energy infrastructure. In response, Iran adopts a calibrated countermeasure aimed at demonstrating deterrence domestically while avoiding broader escalation, and other regional actors refrain from direct involvement. Under this scenario, maritime transport through the Strait of Hormuz will continue without sustained disruption.

Therefore, any shocks to physical supply are most likely to stem from minor logistical frictions rather than infrastructure damage. These frictions could include: several days of caution and delays in tanker shipments, temporary increases in insurance rates, tightening of sanctions enforcement, and limited self-imposed restrictions by traders. Based on this, the report assesses the potential supply disruptions to be relatively mild, ranging from 0 to 500,000 barrels per day, and temporary, expected to last 1 to 3 weeks. There is even a possibility that, as in the June 2025 event, regional strikes may not translate into sustained export losses.

In this scenario, even with a temporary shortage of the aforementioned scale, Saudi Arabia and the UAE have sufficient available spare capacity to offset it, thus limiting the risk of long-term physical imbalances. However, the initial market reaction will still focus on front-end prices. Brent crude prices could be pushed up to the $75-80 per barrel range due to short-term risk premiums, and the spread between near-term and far-term contracts (M1-M4) would widen from current levels.

However, the more crucial balancing mechanism in this scenario will be reflected on the demand side, particularly through adjustments in inventory behavior, rather than final consumption. Over the past six months, China's implied crude oil inventory accumulation has averaged approximately 800,000 barrels per day. In an environment of rising oil prices, especially with a deepening backwardation in futures contracts, the pace of this autonomous strategic reserve accumulation is likely to slow.

The report predicts that the willingness to accumulate inventories will weaken when oil prices reach the mid-to-high range of $70 per barrel. The mere slowing of China's inventory accumulation rate from recent highs to a more normal level (e.g., around 300,000 barrels per day) would be enough to offset the impact of a temporary disruption of Iranian exports by 500,000 barrels per day.

In the second scenario, the market price reaction will be "high at the beginning and low at the end." Initially, prices will surge due to risk pricing, but as the triple balancing mechanism of easing logistical frictions, OPEC's spare capacity reassuring the market, and slowing Chinese inventory demand takes effect, and in the absence of evidence of continued supply disruptions, the crude oil futures curve and prices are expected to compress again, eventually returning to the low to mid-range of $60 per barrel. This normalization process may last longer than in the first scenario, extending from weeks to months, but it will not trigger a sustained, substantial, and significant price increase.

Scenario 3 (Partial Disruption of Iranian Exports): A broader strike leads to a partial disruption of Iran's export chain, but does not affect shipping through the Strait of Hormuz. This could result in a supply disruption of 0.8-1.5 million barrels per day for 4-10 weeks. Price movements would fall between Scenario 2 and Scenario 4. (Low Probability)

The third scenario, "localized disruption of Iranian exports: broader strikes but no damage to shipping," is considered a low-probability escalation path. This scenario assumes a broader U.S. military operation targeting a wider range of strategic assets within Iran, but other regional actors avoid direct involvement, and the crucial Strait of Hormuz shipping lanes do not suffer sustained damage—that is, no sustained escort measures or systemic shipping disruptions occur. The primary target of the military operation is not energy infrastructure, but its scale is sufficient to cause substantial, localized disruption to Iran's export chains.

Its core impact is operational rather than structural. Specifically, this could include: intermittent disruptions to loading operations at key export terminals (such as Halg Island), temporary power or communication outages affecting terminal operations, and short-term logistical constraints from oil fields to terminals. Meanwhile, the continued tightening of sanctions enforcement and commercial self-imposed restrictions could keep actual export volumes below normal levels even after the military operation period ends.

In this scenario, a plausible outcome would be a significant and prolonged decline in Iranian exports—larger than in Scenario 2, but not as severe as the regional shipping efficiency shock seen in Scenario 4. The report assesses an effective supply loss of approximately 800,000 to 1.5 million barrels per day, lasting about four to ten weeks, depending on the nature of the operational disruption and the speed at which export logistics return to normal.

Market reaction suggests that price volatility will primarily be concentrated at the front end of the futures curve. The spread between near-term and far-term contracts (spot spread) is expected to widen and maintain upward pressure for a longer period than in Scenario 2, reflecting a more persistent tightness in physical supply. However, the likelihood of an acute mismatch as described in Scenario 4 is low, as cross-strait shipping has not suffered sustained damage. In this scenario, the balancing mechanism will play a more prominent but still effective role than in Scenario 2: Saudi Arabia and the UAE have spare capacity to offset a significant portion of the shortage exceeding 1 million barrels per day, but their responsiveness and market confidence in this will be key to price dynamics; on the demand side, higher oil prices and a deeper backwardation structure are expected to dampen autonomous inventory demand, particularly in China, providing an additional buffer.

Therefore, price action will likely fall somewhere between the short-term surge of Scenario 2 and the dramatic spike of Scenario 4. As evidence accumulates that the disruption is operational and reversible, the futures curve will begin to compress; however, given the longer duration of the export disruption and the time needed for the market to verify a sustained recovery in Iranian exports, the price normalization process will be slower than in Scenario 2.

Scenario 4 (Fleet Efficiency Shock and Shipping Damage): Tail Risk. Iran's maritime countermeasures, such as harassing vessels, lead to decreased shipping efficiency and increased delays. This equates to an "effective supply shortage" of 2-3 million barrels per day for several weeks, potentially causing a price surge similar to that of early 2022, but for a shorter duration. (Tail Risk)

The fourth scenario, "Fleet Efficiency Shock: Damage to Regional Maritime Leverage and Shipping," is defined as a low-probability but potentially high-impact "tail risk" event. This scenario assumes that after a large-scale US attack, Iran takes a significant retaliatory measure, utilizing its maritime influence in the Gulf region without attempting to completely blockade the Strait of Hormuz. Such actions might include repetitive speedboat harassment, selective seizure of tankers, drone overflights, and missile demonstrations, all aimed at significantly increasing navigational risks and uncertainty in the region. While commercial shipping will continue, its speed will be forced to slow, insurance rates will soar, some shipowners may temporarily withdraw capacity, and naval escort or convoy sailing patterns may reappear, all of which will effectively extend vessel turnaround times.

The primary impact of this scenario does not stem from disruptions in oilfield production, but rather from a decline in the productivity of the global shipping fleet. The report clarifies this through quantitative simulations: currently, approximately 11 billion ton-miles of crude oil are transported daily from behind the Strait of Hormuz. If enhanced security procedures, escort operations, and route delays extend the average transit time on these routes (e.g., by 5 days), the effective productivity of ships operating on these routes will decrease by approximately 17%. This translates to a loss of nearly 2 billion ton-miles of effective capacity per day, equivalent to 6% of global crude oil seaborne capacity. Based on the current seaborne crude oil flow of approximately 50 million barrels per day, this equates to an "effective supply contraction" of 2 to 3 million barrels per day over several weeks.

From a market equilibrium perspective, such a disturbance is likely to exceed the buffer that China's slowdown in strategic reserve accumulation can provide, and will also test the actual utilization limits of Saudi Arabia and the UAE's spare capacity. Therefore, the price and futures curve structure's reaction may begin to resemble the dynamics of early 2022, when the market doubted its ability to absorb a supply gap of millions of barrels, leading to a significant revaluation of near-term contract prices. The market reaction will be sharply concentrated at the front end of the curve: Brent crude prices may surge, and the spread between near-term and far-term contracts (the spot spread) will widen significantly as refiners and traders vie for readily available crude.

However, unlike in 2022, the primary balancing mechanism may not require a continued decline in final consumption: higher oil prices and steeper backwardation are expected to dampen autonomous inventory demand (especially in China) and accelerate adaptive adjustments in shipping and operations, which could help limit the duration of market mismatch.

At the same time, shipping rates will surge. This effective tightening will gradually ease as operational adjustments take effect, and as long as shipping can continue under high risk. However, during the period of shipping disruption, oil prices may be far higher than those described in Scenario 2, and the normalization process will depend on when confidence in shipping safety in the Gulf region is restored.

MS: Situational Analysis of the Iran Situation

Oil prices are driven by rising risks, not tight supply: easing physical signals and soaring options skewness. We outline four Iranian scenarios, ranging from diminishing risk premiums to shipping disruptions, and maintain our base case forecast that Brent crude will gradually slide toward around $60/barrel as risk premiums recede and the supply-demand balance eases.

Key points

Futures prices, freight rates, and risk reversal options all rose this week, while futures spreads and physical spreads weakened—the market is pricing in geopolitical risks rather than immediate supply tightness.

• We ruled out the continued closure of the Strait of Hormuz as the core scenario; instead, we listed four scenarios ranging from easing tensions to disruptions in shipping.

• For moderate shocks, building up inventory is the primary buffer for China: as prices rise and the price deficit widens, voluntary inventory building may slow down.

The biggest impact channel is logistics: escort/delay risks will reduce fleet efficiency—equivalent to an effective supply contraction of about 2-3 million barrels per day in the short term.

• The base case remains anchored on a scenario without significant disruptions: the risk premium of $7-9/barrel may fade, and Brent crude could slip to $60/barrel as the surplus re-emerges.

 Figure 1: Shipping rates surge, partly due to escalating tensions in the Middle East.

 Figure 2: Upward revision of recent Brent crude oil price forecasts due to the potential persistence of geopolitical risk premiums for some time, but prices are still expected to fall back to $60/barrel later this year.

Four scenarios in the crude oil market

Market Signals: Risk Premium Repricing vs. Tight Physical Supply

This week, the crude oil market sent a noteworthy signal: paper risks were repriced and pushed up, while signs of tight physical supply eased.

Near-month futures prices for all three major benchmark crude oils strengthened (Brent rose approximately $3.1/barrel to approximately $71.8/barrel, WTI rose approximately $3.5/barrel to approximately $66.4/barrel, and Dubai rose approximately $3.7/barrel to approximately $70.7/barrel, all week-on-week), and shipping indicators also rose in tandem. In the options market, the spread for Brent 3-month 25-Delta risk reversal options widened sharply, approaching levels seen during periods of severe uncertainty in early 2022.

Figure 3: Brent risk reversal option spreads widened sharply, approaching the peak levels seen before and after the Ukrainian invasion in early 2022.

However, several indicators that typically track spot physical conditions moved in the opposite direction: the Brent M1-M2 spread narrowed (from about $0.7/barrel to about $0.5/barrel), the Brent DFL real price decreased (from about $0.9/barrel to about $0.3/barrel), and the Brent CFD spread compressed sharply (from about $3.0/barrel to about $0.7/barrel in the first week).

The spreads for long-haul crude oil in the Atlantic Basin have also eased, including West African and other arbitrage crudes – a pattern that typically aligns with a shift in immediate supply towards easing rather than tightening.

In summary, the rise in futures prices, increased freight rates, and heightened risk reversal skewness, along with the weakening of spot and physical price spreads, are typical characteristics of the market pricing in geopolitical risk premiums and tail risk hedging demand, rather than a reaction to immediate scarcity.

Figure 4: Conflicting signals: Brent near-month contracts rise...

Figure 5: ...while the M1-M2 calendar spread weakened.

Nevertheless, geopolitical risks do exist; we outline four scenarios.

In recent weeks, public reports have indicated a significant buildup of U.S. military assets in the Middle East and surrounding regions, including additional tactical aircraft squadrons (F-15, F-35, and F-22), refueling aircraft, and early warning radar systems, as well as enhanced naval deployments.

According to multiple news agencies, the USS Abraham Lincoln aircraft carrier has arrived in the Gulf, and a second carrier strike group, centered on the USS Gerald R. Ford, is en route. A recent BBC News report stated that this is the largest U.S. air and naval deployment in the region since the 2003 invasion of Iraq.

Against this backdrop, we have established the following scenario framework.

Before delving into the analysis, we need to clarify one point: while an open and sustained closure of the Strait of Hormuz is not impossible, we have not included it as a core scenario. The threshold for such an outcome is high, and the probability appears to be extremely low.

The U.S. Fifth Fleet, headquartered in Bahrain, has a long-standing mission to protect freedom of navigation. The U.S. and its allies possess extensive air and sea capabilities (including mine countermeasures), making a sustained closure difficult to maintain. Attempting a closure would also economically harm Iran itself, as its exports rely on these waters, and would directly jeopardize supplies to key customers like China—factors that could trigger a broad international reaction.

Therefore, consistent with historical experience, we focus on a range of scenarios, from de-escalation to limited friction, localized disruptions to Iranian export chains, and damage to transportation through operational and shipping restrictions (rather than continued closures).

Figure 6: Iran's seaborne exports declined slightly but remained strong.

Figure 7: Approximately 15 million barrels per day of crude oil and 5 million barrels per day of refined petroleum products are transported out through the Strait of Hormuz.

Figure 8: The Middle East Gulf Region

Scenario 1 - No supply disruptions: Easing situation and diminishing risk premium

• Reference scenario; high probability

• No impact on production or exports

• Risk premium of $7-9/barrel dissipates: Brent crude oil prices fall back to the lower end of $60/barrel

In this scenario, diplomatic pressure coupled with a clear U.S. military presence proves sufficient to prompt Iran to adjust its nuclear stance in negotiations, avoiding direct military confrontation. Negotiations may remain lengthy and gradual, but the threat of force will primarily serve as leverage, rather than a prelude to actual action. Sanctions enforcement may remain strict, but will not impose additional restrictions that substantially alter current export flows.

Under these conditions, physical oil supplies remain largely unchanged. Iranian exports continue to remain at roughly near-term levels, and regional transport through the Strait of Hormuz is unaffected. The main market effect will be the elimination of the geopolitical risk premium currently embedded in front-end prices.

Based on our regression analysis of OECD business inventories and Brent M1-M4 calendar spreads over the past 25 years (see attached figure), current inventory levels should correspond to a flat to slightly positive spread structure, rather than a prevalent inverse spread.

The Brent M1-M4 spread is currently trading at around $1.75 per barrel; in a scenario where there is no clear indication of physical supply disruptions, this spread could reconnect to the level implied by the regression analysis, approaching zero. If the front end of the curve turns positive while longer-term Brent prices remain largely stable, this would imply that near-month Brent crude prices are in the lower-middle range of $60 per barrel, compared to the current level around the lower end of $70.

This suggests that in a scenario of de-escalation, the geopolitical risk premium of around $7-9 per barrel could subside relatively quickly. Most of the adjustment is likely to occur within days to weeks, rather than months, especially if market participants are confident that regional supply and transport flows will remain uninterrupted.

A recent precedent illustrates how quickly such a premium can disappear. In June 2025, following the Iran-Israel conflict, Brent crude oil prices rebounded sharply from mid-$60 to near $80 per barrel amid concerns about a wider regional escalation and potential disruptions to Gulf exports. However, as energy infrastructure and transportation flows proved to be largely unaffected, prices fell back to pre-conflict levels within weeks.

This event underscores that geopolitical premiums can form and dissipate rapidly when physical supply remains intact. Volatility may compress, and the front end of the curve may turn to a positive spread as supply and demand fundamentals (rather than geopolitical risks) once again become the dominant pricing driver.

Figure 9: Long-term correlation between inventory and calendar spread...

Figure 10: ...but current inventory levels suggest that the M1-4 spread should be flat, rather than the current inverse spread.

Scenario 2 - Limited strikes and short-term logistical frictions

• High probability

This could cause a supply disruption of 0-0.5 million barrels per day for 1-3 weeks.

Brent crude oil prices initially rose to the mid-to-high range of $70, before returning to the mid-to-low range of $60.

Slowing demand from Chinese inventories is a key balancing mechanism.

This scenario assumes targeted military action by the United States, deliberately avoiding energy infrastructure. Iran responds in a calibrated manner, intended to project deterrence domestically without triggering broader escalation. Regional actors avoid direct involvement, and maritime transport through the Strait of Hormuz continues without sustained disruption.

Under this outcome, any physical supply disruptions are most likely to stem from minor logistical frictions rather than infrastructure damage. These frictions could include brief periods of shipping caution (e.g., tanker delays of several days), temporary increases in insurance rates, tightening of sanctions enforcement, and limited self-imposed restrictions by traders. Therefore, a reasonable range of disruption is mild, approximately 0 to 0.5 million barrels per day, and likely temporary, lasting approximately 1–3 weeks. It is also possible that no measurable disruption will occur at all, as demonstrated by the fact that regional strikes in the June 2025 event did not translate into sustained export losses.

Even if temporary shortages occur within this range, the available spare capacity in Saudi Arabia and the UAE, if utilized, would be sufficient to offset such disruptions, thus limiting the risk of long-term physical imbalances. Furthermore, the primary adjustment margin is likely to occur on the demand side, through inventory activity rather than end-user consumption. Over the past six months, China's implied crude oil inventory accumulation has averaged approximately 0.8 million barrels per day (see attached chart), although such estimates themselves may be revised.

In a higher price environment—especially if front-end backwardation widens—autonomous inventory accumulation is likely to slow. While the exact price threshold is uncertain, we expect inventory accumulation to become less responsive to prices when oil prices reach the mid-to-high range of $70 per barrel. The slowdown in Chinese inventory accumulation from recent highs to more normal levels (e.g., down to around 0.3 million barrels per day) alone could offset a temporary disruption of 0.5 million barrels per day in Iranian exports.

From a market structure perspective, this scenario could produce a forward-leaning reaction. Brent crude oil prices could surge to the $75-80/barrel range, and the M1-M4 spread would widen from current levels as recent risk premiums are priced in.

However, in the absence of evidence of continued supply disruptions, the curve is expected to compress again as logistical frictions ease, OPEC's spare capacity reassures the market, and Chinese inventory demand slows.

While normalization may take longer than in Scenario 1—potentially from weeks to months if uncertainty is intermittent—a sustained, substantial rise in prices could require a larger or more prolonged disruption than assumed here.

Figure 11: China's crude oil inventories may accumulate significantly in the second half of 2025...

Figure 12: ...and based on known crude oil transactions, deliveries in February and March may be high again.

Scenario 3 - Localized disruption of Iranian exports: broader impact but no shipping disruption

Low probability of upgrade

• Disruptions of 0.8-1.5 million barrels per day, lasting 4-10 weeks

• Price movement falls between scenarios 2 and 4.

In this scenario, the United States launched a broader military operation targeting a wider range of strategic assets within Iran, while regional actors avoided direct involvement, and shipping through the Strait of Hormuz continued without sustained damage (i.e., without sustained escort mechanisms and systemic shipping disruptions). Energy infrastructure was not a primary target, but the scale of the operation resulted in substantial, localized disruptions to Iran's export chains.

The relevant transmission channels will be operational rather than structural: intermittent disruptions to loading operations at key export terminals (including security shutdowns), temporary power or communication outages affecting terminal operations, and short-term logistical constraints from oil fields to terminals. Meanwhile, the continued tightening of sanctions enforcement and commercial self-imposed restrictions may reduce loading volumes outside of periods of direct military activity.

In this scenario, a reasonable outcome would be a significant reduction in Iranian exports—larger and longer-lasting than in Scenario 2, but excluding the regional shipping efficiency shocks embedded in Scenario 4. A reasonable range would be an effective loss of approximately 0.8–1.5 million barrels per day, lasting approximately 4–10 weeks, depending on the nature of the operational disruption and the speed of normalization of export logistics.

Market reactions are likely to be concentrated at the front end of the curve: spot spreads are expected to widen and be supported for longer than in Scenario 2, reflecting a more persistent tightness in physical supply. However, the likelihood of a severe mismatch as described in Scenario 4 is low due to the absence of sustained transport disruptions.

The balancing channel in this scenario will be more relevant than in Scenario 2, but it remains important. Saudi Arabia and the UAE have room to offset a significant portion of the more than 1 million barrels per day shortage, although the speed of any response and market confidence in that response will be crucial to price dynamics.

On the demand side, higher prices and steeper backwardation could dampen autonomous inventory demand, particularly in China, providing an additional buffer. As evidence accumulates that the disruptions are operational and reversible, the curve is expected to begin compressing; however, given the longer duration of export disruptions and the time needed for markets to validate a sustained recovery in Iranian loadings, normalization may be slower than in Scenario 2.

Scenario 4 - Fleet Efficiency Impact: Damage to Regional Maritime Leverage and Shipping

Tail risk

The main mechanism is tanker delays, which reduce effective shipping capacity and thus decrease global crude oil exports.

This translates to a supply loss of 2-3 million barrels per day for several weeks.

• Price movement is similar to that of early 2022, although the duration may be significantly shorter.

This scenario assumes that following a large-scale U.S. strike, Iran takes significant countermeasures, leveraging its maritime influence in the Gulf, but without attempting to completely close the Strait of Hormuz. Such actions might include repeated speedboat harassment, selective seizure of tankers, drone overflights, missile demonstrations, and other measures designed to increase risk and uncertainty. Commercial traffic may continue, but at a slower pace. Insurance rates will rise, some shipowners may temporarily withdraw capacity, and naval escorts or convoy operations may reappear, extending effective transit times.

The primary impact of this scenario does not stem from oil field shutdowns, but rather from reduced fleet efficiency. For example, global seaborne crude oil and condensate volume is currently approximately 32 billion ton-miles per day, with about 11 billion ton-miles originating from locations behind the Strait of Hormuz. The average voyage time for these cargo flows is approximately 29 days. If enhanced safety procedures, escort operations, and route delays extend the average voyage time, for example, by 5 days, then the effective productivity of ships operating on these routes will decrease by approximately 5/29, or about 17%.

Applied to cargo flows originating from the Strait of Hormuz, this means a reduction of nearly 2 billion ton-miles of effective shipping capacity per day, equivalent to 6% of global crude oil shipping capacity. Based on the current seaborne crude oil flow of approximately 50 million barrels per day, this equates to an effective supply contraction of 2-3 million barrels per day over several weeks. While the shipping market will gradually adapt through higher freight rates, capacity reallocation, and operational adjustments, the initial impact could be significant relative to available idle capacity.

From a supply-demand balance perspective, such disruptions could exceed the offsetting effect of simply halting China's autonomous inventory accumulation, and will test the actual limits of Saudi Arabia and the UAE's spare capacity. In this regard, price and curve reactions could begin to resemble the dynamics of early 2022, when the market questioned whether the available buffers were sufficient to absorb a shortage of millions of barrels per day, and accordingly repriced the front end of the curve. The market reaction could be concentrated at the front end of the curve, with Brent crude prices rising sharply and spot spreads widening significantly as refiners and traders compete for near-term spot prices.

However, unlike in 2022, the primary balancing margin may not necessarily require a continued decline in end-user consumption: higher prices and steeper backwardation are expected to dampen autonomous inventory demand (especially in China) and accelerate shipping and operational adjustments, thus helping to limit the duration of mismatch.

Freight rates are also expected to rise accordingly. Effective tightening will gradually ease as operational adjustments take effect and if shipping continues under high risk. However, prices may be significantly higher than described in Scenario 2 during periods of shipping disruption, and normalization will depend on the restoration of confidence in Gulf shipping safety.

Price forecasts have been adjusted but remain anchored to scenarios 1 and 2.

The scenario framework described above reflects the near-term uncertainty surrounding geopolitically driven supply risks. Nevertheless, our core view remains anchored in scenarios 1 and 2, namely that the eventual disruption to physical supply will be minimal or nonexistent.

If this outcome occurs in the coming weeks, our regression framework (which links OECD commercial inventories to the Brent M1-M4 calendar spread) suggests that the geopolitical risk premium of around $7-9/barrel in near-month Brent crude may recede, the curve may flatten, reaching levels implied by current inventory levels, and spot prices may fall back to the low $60 range.

However, aside from the near term, our fundamentals remain weak. The supply-demand balance in January was tighter than we expected due to temporary supply disruptions (including in Kazakhstan and the US), but these disruptions appear to be reversing. Furthermore, early tracking data from Petro-Logistics suggests that OPEC+ production is on track to rebound by approximately 1.2 million barrels per day month-on-month in February.

Therefore, our crude oil balance still points to a surplus of approximately 2.5 million barrels per day in the first half of 2026 and approximately 1.4 million barrels per day in the second half of 2026.

We assume that an oversupply of approximately 800,000 barrels per day will be absorbed by Chinese inventories, but we do not assume that offshore floating inventories will increase as significantly in 2026 as they did in 2025. This implies an estimated oversupply of 600,000 to 1.7 million barrels per day that needs to be absorbed by onshore inventories outside of China, including a significant portion of commercial inventories in the OECD/Atlantic Basin pricing center.

Historically, inventory absorption of this scale may require the front end of the Brent curve to revert to a slight spot discount (positive spread) later in the year. Applying our regression relationship to our projected inventory trajectory suggests that while recent easing of tensions may pull Brent prices back to the $60 level, the accumulation of OECD commercial inventories in the second half of the year, under purely fundamental conditions, could be consistent with a deeper positive spread and near-month prices close to the $50 level.

However, in practice, prices are unlikely to be determined solely by pure fundamentals. Recent weeks have once again highlighted that geopolitical risk premiums can provide substantial support upfront, particularly when prices soften, creating a negative feedback loop when prices fall.

Based on this, our basic expectation is that Brent crude oil prices will gradually slide to around $60 per barrel in the near term as 2026 progresses. However, we believe that unless there is a clearer and more lasting easing of geopolitical risks, there is limited room for prices to remain significantly below that level.

Figure 13: After a weak January, OPEC 9+3 production is expected to rebound by approximately 1.2 million barrels per day month-on-month in February.

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