Stranded Gulf supply, Iran conflict may push Brent toward $130-145: Analyst

After more than 60 days of the US–Israel conflict with Iran, the global crude market is operating in a regime it has not seen in five decades. Brent settled near $108 per barrel on May 5, off its early-April peak of $128, but still more than 55 per cent above pre-war levels. The pullback is technical, not structural. The Strait of Hormuz remains effectively closed despite the conclusion of “Project Freedom"; only four ships transited the day Washington's escort initiative began, against a pre-war daily average above 120.

The largest supply shock on record

The IEA has labelled the current disruption the largest in oil market history. Iraq, Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain collectively shut in 7.5 million barrels per day (mb/d) of crude in March, rising to 9.1 mb/d in April. Global supply fell 10.1 mb/d to 97 mb/d in March. Hormuz flows, which carried 20 mb/d in February, collapsed to 3.8 mb/d by early April. Saudi Arabia's East–West pipeline and the UAE's Fujairah terminal pushed bypass volumes from under 4 mb/d to 7.2 mb/d, but 4 May’s Iranian strike on Fujairah is a reminder that alternative routes are not immune. Roughly 10–12 mb/d of GCC crude remains stranded.

 

UAE exits OPEC+: A structural break

The UAE's withdrawal from OPEC and the broader OPEC+ alliance took effect May 1, ending nearly six decades of membership. Abu Dhabi was the cartel's second-largest holder of spare capacity behind Riyadh; it was producing well under its 4.8 mb/d capacity due to a 3.2 mb/d quota. The UAE now intends to scale to 5 mb/d by 2027, potentially adding 2 mb/d to global supply once Hormuz reopens. We believe this is a huge loss to OPEC’s foundations UAE was a "core pillar" of OPEC's market-management architecture. The implication is structurally bearish for the medium term — higher volatility, weaker price floors, and a Saudi-led bloc with diminished discipline.

Demand destruction and reserve drawdown

The IEA has reversed its 2026 demand outlook from growth to a contraction of 80,000 b/d, with Q2 alone expected to fall 1.5 mb/d — the steepest decline since the Covid shock. Naphtha, LPG and jet fuel cuts are concentrated in Asia and the Middle East. Global observed inventories drained 85 million barrels in March; Asian importers were down 31 million barrels alone. Japan has begun releasing 80 million barrels — about 15 days of domestic demand — from strategic stocks, and IEA member states have committed a coordinated 400-million-barrel release. Mauritius is down to 21 days of cover; Pakistan, Bangladesh and Vietnam are rationing. Global inventories nominally sit at 8.1 billion barrels, but with much of that trapped behind the Hormuz blockade, the binding constraint is geographic, not absolute.

Russia's two-month windfall

Russia is the unintended beneficiary. March crude and product export revenue jumped to roughly $19 billion, nearly double that of February. Seaborne crude shipments rose 8.9 per cent month-on-month, with combined exports near 7.1 mb/d. Urals crude averaged $94.5 per barrel in March, up 67 per cent, with the Brent discount halving to $6.4. India's imports of Russian crude surged 88 per cent to 1.9 mb/d; China's seaborne intake reached 1.8 mb/d. The US sanctions waiver expired on April 11, but Moscow has already monetised the conflict.

Asia, inflation, and the eight-week risk

Asian importers — the engine of marginal demand growth — are visibly slowing. Chinese and Indian refiners have trimmed runs, and Singapore middle distillates briefly touched $290 per barrel. The inflationary pass-through is already evident: US retail gasoline peaked near $4.30 per gallon in April, diesel near $5.80, and the World Bank now projects developing-economy inflation at 5.1 per cent for 2026, a full point above its pre-war baseline. Fertiliser prices are up roughly 40 per cent, kicking off the next leg of food inflation.

Outlook

We believe that if the conflict extends another eight weeks without a credible Hormuz reopening, expect Brent at $130–145 per barrel, with the World Bank's adverse scenario averaging $115 for the full year and trading desks increasingly hedging a $150 tail. But if any diplomatic resolution could see Brent prices easing towards $95-100/b, the market is no longer pricing demand growth. It is pricing how long the supply stays stranded.  =========================  (Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)