Oil prices expected to end around $52-$54/barrel this year, says analyst

Strait of Hormuz: The world’s most dangerous oil chokepoint

The recent surge in oil prices to a 4.25-month high, with Brent briefly touching $70.50, is largely driven by a shift in US policy. President Trump’s deployment of a major naval fleet, including the USS Abraham Lincoln, signals that a military strike is being considered as a pre-emptive defensive option if nuclear talks fail. Markets have already priced in a $7–$10 war-risk premium, reflecting fears that Iran could retaliate by mining or blockading the Strait of Hormuz. Even a partial disruption of this critical route—through which nearly 20 million barrels per day flow would severely threaten global supply.

How significant is Iran’s impact on global oil markets?

Iran holds a uniquely influential position in global energy markets, shaped not only by its substantial oil production but also by its control over the Strait of Hormuz, one of the most critical and vulnerable energy transit chokepoints in the world.

1. Direct market impact

Iran produces over 3 million barrels per day (mbpd) of crude oil and exports 1.5–2 mbpd, making it a major contributor to global supply. Because crude markets are finely balanced, even a modest disruption in Iranian output can meaningfully shift pricing. Historically, every 1 mbpd surplus or deficit has moved oil prices by approximately $6 per barrel, which explains why markets have already embedded a $7–$10 geopolitical risk premium linked directly to Iranian supply uncertainty. This reflects the persistent threat of sanctions, internal instability, and the possibility of targeted strikes on Iran’s energy infrastructure.

2. The strategic importance of the Strait of Hormuz

While Iran’s direct production is meaningful, its geographic leverage is even more consequential. The Strait of Hormuz—just 21 miles wide overall, narrowing to 2.2 miles at its tightest shipping lane—is immediately adjacent to Iran’s coastline. This gives Tehran an unmatched strategic advantage. The shipping lanes are extremely vulnerable to disruptions from naval mines, drone activity, fast-boat harassment, and land-based missile systems, all of which Iran has repeatedly signaled it could deploy during periods of heightened tension. Historically and as recently as 2025–2026, Tehran has used the threat of closing or obstructing the Strait as a tool of deterrence.

3. Global economic exposure

The stakes are immense. Each day, 20–21 million barrels of oil pass through the Strait—equivalent to 20 per cent of global petroleum consumption and roughly one-quarter of all seaborne crude shipments. It is also the primary export route for nearly 20 per cent of global LNG, driven largely by Qatar. Alternatives exist, such as bypass pipelines in Saudi Arabia and the UAE, but these can handle only 15–20 per cent of the usual flow, leaving the world largely dependent on this narrow corridor.

 

Any escalation involving Iran—whether military confrontation, sanctions escalation, or domestic unrest—could severely restrict tanker traffic, trigger sharp price spikes, push up shipping and insurance costs, and disrupt supply chains. The impact would be most acute in Asia, as nearly 80 per cent of the oil transiting the Strait is destined for China, India, Japan, and South Korea.

 

In short, Iran’s direct oil output matters—but its control over the Strait of Hormuz makes it one of the most strategically vital actors in the global energy system.

Outlook

Renewed geopolitical tensions have pushed crude oil prices up by nearly 14 per cent this month, and any further escalation could add another $10–$12 per barrel to the rally. However, despite the sharp short-term upside risk, the broader outlook remains bearish, with prices still expected to end the year around $52–$54 per barrel. The immediate challenge lies in assessing the short-term price impact given the elevated risk of conflict.

 

Near-term demand signals also appear soft. The week-long Lunar New Year holiday in China is likely to dampen industrial consumption, while US demand trends continue to weaken in response to softer consumer spending. As geopolitical risk premiums gradually unwind, we expect WTI to retreat toward $60 per barrel, reflecting underlying fundamentals rather than transient event-driven price spikes.

 

(Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are her own.)