Iran has launched a massive retaliatory campaign following joint U.S. and Israeli airstrikes, sending an unprecedented barrage of more than 500 ballistic missiles and 2,000 drones across targets in Israel and several Gulf states. A drone strike on a command center killed six U.S. service members in Kuwait while several missiles were intercepted near Al Udeid Air Base, the largest U.S. base in the region. Commodity analysts at Standard Chartered have hiked their oil price forecasts, noting that unlike last year’s largely symbolic response, Iran’s much broader approach in the fresh conflict have resulted in several regional flashpoints that pose real risk to oil supply flows, including potential contagion affecting US-operated assets.
StanChart now sees Brent crude averaging $74 per barrel in the first quarter of 2026, up from its previous forecast of $62 per barrel; Q2 to $67/bbl (from $63/bbl) and 2026 average to $70/bbl (from $63.50/bbl). The analysts add that there’s asymmetric upside risk to these forecasts if the conflict escalates further and impairs production from Iran and any of the regional producers.
StanChart has flagged the significant risk posed to Iraq’s oil flows thanks to its heavy reliance on transit through the Strait of Hormuz. Iraq has begun to shut in some major oil fields, such as Rumaila, and cut back production at others, such as West Qurna 2, with storage tanks reaching capacity.
The Strait of Hormuz remains the biggest flashpoint, with the waterway used for energy transit of ~31% of seaborne crude and condensate. This is mostly destined for China and India, which may turn to Russia for alternative supply. In addition, it’s used for 19% of LNG (including all supply from Qatar), 19% of jet fuel and kerosene tilted towards European supply and 33% of global fertiliser transit.
Whereas no barrels have been lost so far, StanChart notes that the risk to vessels from mines or missiles has increased insurance premiums and supertanker shipping costs dramatically. To wit, supertanker freight rates from the Middle East to China on the TD3 route now exceed $400,000 per day, double the rate from 27 February, which was already a six-year high. That rate now includes war-risk bonuses and hazard pay for crews, with the exorbitant costs making it uneconomical for the majority of companies.
According to StanChart, tanker tracking suggests that limited transit is skewed towards Iranian on Chinese vessels, and this could trigger a rise in landed crude costs--even if the flat price stabilizes--if the freight premium is retained for prolonged periods of time and becomes a structural rather than a temporary cost.
That said, there are mitigating factors that could help check oil prices. According to StanChart, there is limited infrastructure in place to allow a bypass of the Strait of Hormuz and provide some relief to disruption to crude flows. Saudi Arabia and the UAE have pipelines that
usually operate at less than full capacity, giving an estimated 2.6 million barrels per day (mb/d) of spare capacity to redirect exports. This includes:
The East-West pipeline in Saudi Arabia connects the processing facilities at Abqaiq to the Red Sea. It has a 5mb/d capacity, but this was temporarily expanded to 7mb/d in 2019 by converting some natural gas liquids (NGL) pipelines to move crude.
There is a 1.8mb/d pipeline from the UAE’s onshore fields to Fujairah on the Gulf of Oman, although its spare capacity is likely limited by its increased use for normal export.
Unfortunately, alternative routes for refined products and LNG are significantly more limited. Natural gas prices have spiked after QatarEnergy declared force majeure on LNG deliveries on Monday, taking about 20% of global LNG production offline, the vast majority of which goes to Asian customers. Coupled with the shutdown of some Israeli fields, this has exposed the structural vulnerability of the LNG market, leaving buyers scrambling for spot cargoes.
This panic buying of JKM to cover lost cargoes pushed it to its highest premium over the Dutch Title Transfer Facility (TTF) since 2021. European natural gas futures pulled back nearly 10% on Wednesday to trade at €49.7 per megawatt-hour after vaulting nearly 60% over the prior two sessions. However, U.S. gas markets remain well insulated, with Henry Hub gas prices falling 3.3% to trade at $2.95/MMBtu on Wednesday.
By Alex Kimani for Oilprice.com
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