What the Gulf War and past supply disruptions says about how high oil prices can go

Citigroup analysts suggest oil prices are likely trading near their upper range given the ongoing Israel-Iran tensions, drawing parallels to past supply disruptions and conflicts. While Brent crude fell 1.8% to $77.40 a barrel on Friday, Citigroup anticipates a worst-case scenario of $90 for Brent in the event of a more significant Israel-Iran conflict. President Trump's upcoming decision on U.S. involvement in potential Israeli strikes against Iran is also weighing on the market.

Analysis

Citigroup analysts assess that Brent crude, which recently fell 1.8% to $77.40 per barrel, is likely trading near the upper end of its appropriate range when benchmarked against historical oil price reactions to geopolitical conflicts and supply disruptions. Despite this view, Citigroup projects a potential upside to $90 per barrel for Brent in a worst-case scenario involving a significant escalation of the Israel-Iran conflict. The market's current 'uncertain' tone, reflected in a neutral sentiment score (0.0) and a moderate market impact score (0.55), is further influenced by impending decisions, such as President Donald Trump's upcoming announcement regarding U.S. involvement in potential Israeli strikes on Iran, and ongoing diplomatic discussions between European foreign ministers and their Iranian counterpart.

Key Decisions for Investors

• Investors should closely monitor geopolitical developments in the Middle East, particularly pronouncements regarding U.S. involvement in the Israel-Iran situation, as these are primary catalysts for oil price volatility.
• Consider strategies that balance Citigroup's assessment of oil trading near its upper historical range under current tensions against the potential for a significant price spike to $90 per barrel should the conflict escalate, implying a need for careful risk management or opportunistic positioning for tail events.
• The recent price movement, with Brent paring deeper losses to close at $77.40 despite ongoing tensions, and the market's 'uncertain' tone, suggest that while some geopolitical risk is priced in, significant deviations from the anticipated conflict trajectory could trigger sharp price responses in either direction.