Brent to average $90 if US-Iran pact resolves Hormuz disruption: Analyst

Energy disruption sending distress signal

The second-order effects of the US–Iran conflict are no longer confined to crude markets. They are now repricing sovereign debt, reshaping monetary policy, and testing the fiscal limits of major economies in ways that demand urgent attention from both investors and policymakers.

 

Global crude oil prices have surged approximately 55 per cent over the past three months and are now up roughly 80 per cent year-to-date, following the disruption to flows through the Strait of Hormuz — one of the world's most critical energy chokepoints. What began as a geopolitical flashpoint has evolved into a structural stress test for the global energy system, with consequences cascading far beyond commodity markets.

 

Depleting buffers, tightening supply

The United States authorised the release of up to 172 million barrels from its Strategic Petroleum Reserve (SPR) to stabilise markets, but the intervention has come at a visible cost. SPR inventories have declined to 384.1 million barrels from 415 million earlier this year, with weekly drawdowns running between 8 and 10 million barrels. At the current pace, reserves are projected to fall to approximately 347 million barrels by late June — approaching the modern low last recorded in 2023 — with a policy floor near 238 million barrels representing a hard structural constraint.

 

The picture in commercial inventories is equally concerning. Of an estimated 8.4 billion barrels available globally at the start of 2026, only around 800 million are operationally accessible without disrupting logistical flows. With roughly 280 million barrels already drawn down, we expect of acute supply strain by mid-June, with the risk of localised shortages and panic-driven buying intensifying through early July. 

A synchronised inflationary shock

The energy price spike is now transmitting unmistakably into global inflation data. In the United States, the Consumer Price Index rose 3.8 per cent year-on-year in April 2026 — the highest reading in nearly three years — with monthly price gains accelerating to 0.6 per cent. costs were the primary driver, jumping 17.9 per cent year-over-year, with gasoline prices surging 28.4 per cent. Core CPI, excluding food and energy, came in at 2.8 per cent annually, still meaningfully above the Federal Reserve's 2 per cent target. Markets have now effectively priced out rate cuts through 2027, with the 10-year Treasury yield surging to 4.66 per cent in the days following the release. Looking ahead,  we could see US CPI could hit 6 per cent in the second quarter — a dramatic revision from the 2.7 per cent forecast made just three months prior.

 

In China, the picture is more nuanced but equally telling. Consumer prices rose 1.2 per cent year-on-year in April, beating the 0.9 per cent consensus, while the producer price index surged 2.8 per cent — its highest reading since July 2022 — as Middle East supply disruptions drove sharp increases across industrial sectors. Non-ferrous metals mining prices rose 38.9 per cent year-on-year, while oil and gas extraction costs climbed 28.6 per cent. Crucially, China's crude oil imports fell 20 per cent in volume terms in April, signalling that the price shock is already beginning to compress demand — a dynamic with significant implications for global refining margins and emerging market exporters. Beijing has partially insulated domestic consumers through fuel price controls, but the factory-gate pressure is building regardless. 

 

India presents the starkest case of external vulnerability among major emerging markets. Retail CPI inflation edged up to 3.48 per cent in April 2026, the fastest pace in a year, with food inflation rising to 4.20 per cent. However, the headline figure masks more alarming pressures beneath the surface. India's wholesale price inflation surged to 8.3 per cent in April, driven primarily by higher prices of mineral oils, crude petroleum, natural gas, and basic metals— a leading indicator that consumer-facing price pressures have considerably further to run.

 

With roughly 90 per cent of crude oil imported and nearly half historically routed through Hormuz, India's macroeconomic exposure to this disruption is acute. Foreign exchange reserves have declined by $40 billion in just four weeks, from $728 billion in February to approximately $690 billion by early May. The rupee has depreciated beyond ₹96 per US dollar — among the worst-performing major currencies, down approximately 7 per cent year-to-date — amplifying import costs in a self-reinforcing cycle. The trade deficit widened to a record $28.4 billion in April, even as export growth remained a solid 13.8 per cent, underscoring the asymmetric nature of the energy burden.

 

The inflationary transmission is also working through secondary channels. Oil marketing companies are absorbing losses estimated at ₹1,000 crore per day, while consumer goods firms are resorting to "shrinkflation" — reducing product sizes at sticky price points of ₹5 and ₹10 rather than raising sticker prices. Companies such as Hindustan Unilever and Parle are already adjusting gram weights in fast-moving consumer goods, effectively passing the cost of oil through household consumption in ways that do not register cleanly in headline inflation metrics. The current account deficit could double to 2.5 per cent of GDP this year, and the fiscal deficit target of 4.3 per cent appears increasingly optimistic if crude remains above $100 per barrel.

The road ahead

The probability of US–Iran negotiations entering a more substantive phase is rising — every additional week of disruption deepens financial market stress that the White House cannot indefinitely absorb. However, any re-escalation from the current fragile equilibrium risks pushing Brent prices sharply above $125–130 per barrel, a threshold at which demand destruction would accelerate materially across both developed and emerging markets, however we expect Brent to average around $90 by year end If US -Iran reaches an agreement for “Strait of Hormuz” by mid-June, and we get to see traffic normalising by September.

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