Standard Chartered Forecasts Prolonged Rise in Oil Prices
European Union foreign ministers recently decided against U.S. President Donald Trump’s proposal for military assistance to secure the Strait of Hormuz. Instead, the EU is focused on enhancing the safety of its own military installations in the region. This comes amidst rising tensions and energy supply disruptions in the area.
Kaja Kallas, the Vice-President of the European Commission, previously suggested extending the Operation Aspides mandate. Operational since 2024, Aspides is an EU military initiative designed to protect merchant shipping and uphold freedom of navigation in the Red Sea and Gulf of Aden. However, European leaders express reluctance to engage directly in the conflict. Germany’s Defence Minister, Boris Pistorius, remarked on the expectation that European naval forces could relieve U.S. military presence, arguing that they cannot match the capabilities of the U.S. Navy.
Standard Chartered’s Oil Price Projections
Amid these geopolitical tensions, analysts from Standard Chartered have updated their forecasts for oil prices, predicting a prolonged increase. Their revised average Brent price forecast for 2026 has risen to $85.50 per barrel from $70.00, and for 2027, it now stands at $77.50, up from $67.00. Analysts anticipate that despite the high prices, market conditions will eventually lead to a gradual decline in oil costs.
Key Price Trends
- Q1 2026: $78.00/bbl
- Q2 2026: $98.00/bbl
- Q3 2026: $85.00/bbl
- Q4 2026: $80.50/bbl
The ongoing conflict in the Middle East has severely impacted global oil supplies, reducing availability by 7.4 to 8.2 million barrels per day. Specific drop-offs include:
- Iraq: Down by 2.9 mb/d
- Saudi Arabia: Down by 2.0 to 2.5 mb/d
- UAE: Down by 0.5 to 0.8 mb/d
- Qatar: Down by 0.5 mb/d
- Kuwait: Down by 0.5 mb/d
Moreover, Iranian oil production is reportedly 1 mb/d below pre-conflict levels. Analysts emphasize that current export capabilities from the Strait of Hormuz are constrained. Consequently, Saudi Arabia is utilizing increased capacity in its East-West pipeline to enhance transit volumes to the Red Sea.
Impact of IEA Oil Release
Standard Chartered has identified a new oil price floor in the low-to-mid $70s, largely influenced by the International Energy Agency’s historic release of 400 million barrels from strategic reserves. This marks the largest release in the organization’s history, surpassing the previous record set in 2022 during the Russia-Ukraine conflict. While this move aims to stabilize markets, it simultaneously raises concerns about the gravity of existing market conditions.
Natural Gas Market Developments
In the natural gas sector, European futures remain elevated, with prices surpassing €50 per MWh—30% above the annual average. This price spike follows significant disruptions in gas flows due to QatarEnergy halting liquefied natural gas production following drone strikes in the region. The interruptions have curtailed approximately 20% of the global LNG supply.
Global LNG Market Response
As a result of the disruptions, major LNG importers in Asia are shifting towards coal and nuclear energy to secure their energy needs. Specifically:
- China is focusing on increasing domestic gas production and pipeline imports.
- Japan is prioritizing coal and nuclear energy to manage gas inventories.
- South Korea is lifting restrictions on coal-based power generation.
This strategic shift reflects the broader vulnerability of the Gulf region, with Qatar being particularly susceptible to future disruptions due to its reliance on the Strait of Hormuz for LNG exports.
