Oil spike on Israel-Iran conflict should ease, according to energy analysts. Here's why

Oil prices surged as much as 14% following Israel's airstrikes against Iran, with U.S. West Texas Intermediate rising 7.48% to $73.13 per barrel and Brent crude increasing 7.23% to $74.38, marking the largest intraday gain since March 2022; however, analysts from Wells Fargo, UBS, and Citi suggest this spike is primarily driven by fear rather than actual supply disruptions, and prices are expected to fall if physical barrels of crude oil remain unaffected. Goldman Sachs maintains its 2026 price forecast, anticipating no major supply disruptions, but acknowledges that prices could spike to $90-$100 per barrel under extreme scenarios involving damage to Iranian oil infrastructure or interruption of trade in the Strait of Hormuz, though such disruptions are considered unlikely.

Analysis

The recent Israeli airstrikes against Iran triggered a significant, albeit potentially transient, surge in oil prices, with U.S. West Texas Intermediate (WTI) climbing as much as 14% before settling up 7.48% at $73.13 per barrel, and global benchmark Brent rising 7.23% to $74.38 per barrel, marking the largest intraday gain since March 2022. However, energy analysts from Wells Fargo, UBS, and Citi concur that this price rally is predominantly driven by fear and geopolitical risk premium rather than immediate physical supply disruptions, especially as initial reports indicate Israel has, for now, spared Iran's energy infrastructure. Wells Fargo analyst Roger Read stated that actual barrels would need to be removed from the market for prices to sustain higher levels. UBS's Mark Haefele anticipates prices will retract if supplies remain unaffected, although a risk premium will likely persist until there is clarity on the U.S. and Iranian responses. This event contrasts with the market conditions just two months prior when crude prices hit their lowest since 2021. Goldman Sachs maintains its 2026 price forecasts of $56 per barrel for Brent and $52 for WTI, predicated on the assumption of no serious, prolonged supply disruptions, a view supported by Citi, which highlights improved relations between Iran and its Gulf Arab neighbors as a mitigating factor against targeted supply attacks. Nevertheless, Goldman Sachs acknowledges sharply risen geopolitical risks, outlining extreme scenarios where Brent could reach $90 if Iranian oil infrastructure damage removes 1.75 million barrels per day for six months, or exceed $100 if Iran disrupts trade through the Strait of Hormuz, through which about a fifth of global oil flows. Most analysts, including RBC Capital Markets' Helima Croft and Again Capital's John Kilduff, view a Hormuz closure as very unlikely due to U.S. military presence and Iran's potentially degraded military capabilities, expecting the current price volatility to subside as has historically occurred in similar situations involving Iran.

Key Decisions for Investors

• Investors should closely monitor for any tangible evidence of physical oil supply disruptions in the Middle East, as this would be the primary catalyst for a sustained price rally beyond the current fear-driven spike.
• Given the analytical consensus that prices may retreat if actual supply remains intact, current elevated levels could present short-term tactical opportunities, though long positions based solely on geopolitical anxieties carry significant downside risk if tensions de-escalate without impacting oil flows.
• While extreme scenarios like a Strait of Hormuz disruption or significant damage to Iranian oil infrastructure are deemed low probability, their potential for extreme price impact warrants consideration for tail-risk hedging strategies in diversified energy portfolios.
• Maintain a focus on long-term fundamentals, as major financial institutions like Goldman Sachs have not yet altered their medium-term price forecasts, suggesting the current geopolitical event is not anticipated to fundamentally shift the global supply-demand balance unless physical disruptions materialize.