Big disruption to oil supply unlikely after Israel's attack on Iran, say analysts

Following Israel's attack on Iran, oil prices initially surged nearly 9%, with Brent crude futures reaching $74.74 per barrel; however, Goldman Sachs and Citi analysts anticipate limited supply disruptions, projecting Brent and WTI prices to fall to $59/$55 in 2025Q4 and $56/$52 in 2026 due to strong supply growth outside U.S. shale. While OPEC sees no immediate need to adjust supply, a worst-case scenario involving a Strait of Hormuz blockade could drive prices above $100 per barrel, according to Goldman Sachs, with JP Morgan suggesting prices could reach $120-$130 in certain extreme scenarios.

Analysis

Following Israel's attack on Iran, oil prices experienced a significant immediate reaction, surging nearly 9% with Brent crude futures trading near $74.74 per barrel, reflecting heightened geopolitical risk. However, prevailing analysis from major financial institutions such as Goldman Sachs and Citi suggests that major, sustained disruptions to oil supply are unlikely. Goldman Sachs, despite incorporating an increased geopolitical risk premium into its summer 2025 oil price outlook, still assumes no actual supply disruptions in the Middle East and forecasts that robust supply growth outside U.S. shale will lead to a reduction in Brent and WTI prices to $59/$55 per barrel by Q4 2025 and further to $56/$52 by 2026. Citi echoes this sentiment, anticipating limited supply impact and doubting that energy prices will remain elevated for an extended period. Similarly, OPEC's Secretary-General Haitham Al Ghais indicated that the current escalation does not warrant immediate changes to supply policy, viewing market conditions as stable. Notwithstanding this base case, a critical tail risk remains: a potential blockade of the Strait of Hormuz, a chokepoint for approximately one-fifth of global oil consumption. Goldman Sachs warns that an extended disruption in this strait could push oil prices above $100 per barrel, a scenario where JP Morgan had previously suggested prices could even reach $120–$130 per barrel under certain extreme conditions. Commerzbank notes that prices are unlikely to fall below $70 for the time being, with further increases dependent on the evolution of supply risks amid any escalation.

Key Decisions for Investors

• Investors should anticipate continued near-term volatility in oil prices driven by geopolitical developments in the Middle East, even as the consensus among major analysts points to limited long-term supply impact.
• Consider strategies that account for a potential medium-term reversion of oil prices towards the $50-$60 per barrel range by late 2025, as forecasted by Goldman Sachs, contingent on the absence of significant escalation or sustained supply disruptions.
• Maintain heightened vigilance on any developments concerning the Strait of Hormuz, as a blockade represents a significant tail risk that could rapidly propel oil prices above $100 per barrel, necessitating a swift reassessment of energy sector exposures and potential hedging actions.