Our new forecasts reflect the expectations of a longer war with Iran, which has effectively choked off flows through the Strait of Hormuz, reducing oil and product movements from roughly 20mb/d to under 2mb/d. Inventories and prices have not yet fully reflected this shock due to lags, oil still at sea, and emergency stock releases, but satellite data already show stocks building in Gulf producers and drawing rapidly in consuming countries. If disruptions persist beyond a few more weeks, the global oil supply chain risks breaking down, forcing demand rationing and triggering consequences reminiscent of, or possibly worse than, the energy crises of the 1970s. Our updated baseline forecast assumes the war ends in 2-4 weeks, factoring in a sizeable 4mn b/d deficit in 2Q followed by an average of 2.5mn b/d deficit in 2H26, elevating the Brent crude average for the year to $92.50/bbl.
Demand rationing and the risk of extreme oil prices are highlighted, as there are limited demand alternatives to oil, especially in transportation and petrochemicals, and only partial supply offsets from Saudi and UAE pipelines. A prolonged energy shortfall would require a forced contraction in global energy demand of 4–5% YoY. Oil prices have not yet fully adjusted because markets still expect a short war and are temporarily cushioned by roughly 700mn barrels from oil in transit and strategic releases. However, once these buffers fade and inventories start to draw sharply, any signs that the conflict will go beyond 2-4 weeks or that energy assets are being permanently damaged could trigger a further spike in prices. Historically, a 1mn b/d swing in S&D balances has impacted Brent by $15-$20/bbl. Thus, an oil supply loss of more than 10mn b/d that persists for 12 months could push up Brent crude by $150 to $200/bbl from the prewar levels of $70/bbl.
The legacy of the war is likely to reshape energy markets structurally. Countries are poised to rebuild strategic inventories, boosting medium-term oil demand once hostilities cease, while simultaneously accelerating efforts to reduce reliance on vulnerable supply routes. This includes greater investment in renewables, nuclear, EVs, storage, and electrification, alongside renewed interest in coal where LNG is scarce. Geopolitics are reshuffling world energy flows again, as both fossil fuel and clean-energy supply chains are expected to diversify geographically, reducing reliance on the Middle East for oil and China for renewables.
The war has forced Middle East LNG production to shut down, displacing European pipeline gas imports from Russia. Total lost global gas supply in 2026 could exceed 2022 losses if the Iran war disruptions persist into 4Q26. Europe will likely have to compete for LNG cargos, switch to coal, and price domestic natural gas high enough to shed demand. The Iran war will boost storage, renewables, and diversification, as consuming nations are set to boost domestic energy storage, locally generated renewables and nuclear power, as well as diversification of both supply sources and supply chains. The world remains overly reliant on the Middle East as a source of supply of thermal fuels such as oil and China for renewables, prompting a drive to diversify supply chains and sources.
