StanChart Raises Oil Price Projection to $74 a Barrel Due to Iran Tensions

Escalation in the Middle East Sparks Oil Market Turmoil

In response to recent coordinated airstrikes by the United States and Israel, Iran has unleashed a sweeping counteroffensive, launching over 500 ballistic missiles and 2,000 drones at targets in Israel and several Gulf nations. A drone attack on a command post in Kuwait resulted in the deaths of six American military personnel, while multiple missiles were intercepted near Al Udeid Air Base, the largest U.S. installation in the region. Analysts at Standard Chartered have sharply increased their oil price projections, emphasizing that, unlike last year’s limited retaliation, Iran’s expansive actions have ignited several regional hotspots, significantly threatening oil supply routes and raising the risk of disruptions to U.S.-linked assets.

Revised Oil Price Forecasts Amid Rising Tensions

Standard Chartered now anticipates Brent crude will average $74 per barrel in the first quarter of 2026, up from their previous estimate of $62. For the second quarter, the forecast has been raised to $67 per barrel (from $63), and the overall 2026 average is now expected to reach $70 per barrel (previously $63.50). The bank’s analysts caution that if the conflict intensifies and disrupts production in Iran or other regional producers, there is considerable potential for prices to climb even higher.

Strait of Hormuz: A Critical Chokepoint

Standard Chartered highlights the vulnerability of Iraq’s oil exports, which depend heavily on passage through the Strait of Hormuz. Iraq has already begun shutting down major oil fields such as Rumaila and reducing output at others like West Qurna 2, as storage facilities near capacity.

The Strait of Hormuz remains the region’s most volatile flashpoint. This vital energy corridor handles about 31% of the world’s seaborne crude and condensate, primarily destined for China and India, who may seek alternative supplies from Russia. The strait also facilitates 19% of global LNG shipments (including all Qatari exports), 19% of jet fuel and kerosene—mainly for Europe—and 33% of worldwide fertilizer transport.

Shipping Costs and Insurance Soar

Although no significant oil volumes have been lost yet, Standard Chartered notes that the heightened threat to shipping from mines and missiles has caused insurance premiums and supertanker freight rates to surge. For example, the cost of transporting oil from the Middle East to China on the TD3 route has surpassed $400,000 per day—double the rate from late February, which was already at a six-year high. These rates now include war-risk surcharges and hazard pay for crews, making shipments prohibitively expensive for most companies.

Tanker tracking data suggests that the limited shipping activity is primarily Iranian oil on Chinese vessels. If elevated freight costs persist and become a long-term feature, the landed price of crude could rise even if global oil prices stabilize.

Potential Offsets to Oil Price Spikes

Despite these risks, there are some factors that could help moderate oil prices. Standard Chartered points out that while infrastructure to bypass the Strait of Hormuz is limited, Saudi Arabia and the UAE possess pipelines that are not fully utilized, offering an estimated 2.6 million barrels per day of spare capacity for rerouting exports. These include:

• The East-West pipeline in Saudi Arabia, linking Abqaiq’s processing facilities to the Red Sea, has a capacity of 5 million barrels per day. In 2019, this was temporarily increased to 7 million barrels per day by repurposing some natural gas liquids pipelines for crude transport.

• The UAE operates a 1.8 million barrel per day pipeline from its onshore fields to Fujairah on the Gulf of Oman, though its spare capacity is likely constrained by regular export demands.

Refined Products and LNG Face Greater Constraints

Alternative routes for refined fuels and LNG are far more restricted. Natural gas prices have spiked after QatarEnergy declared force majeure on LNG shipments, removing about 20% of global LNG supply from the market—most of which serves Asian buyers. The closure of some Israeli gas fields has further exposed the fragility of the LNG market, forcing buyers to scramble for spot cargoes.

This rush for JKM contracts to replace lost shipments has pushed their premium over the Dutch Title Transfer Facility (TTF) to the highest level since 2021. European natural gas futures retreated by nearly 10% on Wednesday to €49.7 per megawatt-hour, after surging almost 60% in the previous two days. In contrast, U.S. gas markets have remained stable, with Henry Hub prices dropping 3.3% to $2.95 per MMBtu on Wednesday.

By Alex Kimani for Oilprice.com