By K Raveendran
Uncertainty surrounding the trajectory of the Iran war has unsettled global oil markets, producing dramatic price swings that underline the fragility of energy supply expectations in a period of geopolitical stress. Within a matter of days, benchmark crude prices have oscillated sharply between levels approaching $120 per barrel and dips into the mid-$70 range, reflecting a market struggling to interpret contradictory signals from Washington. Statements from President Donald Trump have compounded the confusion, with remarks suggesting both the possibility of a swift resolution and the likelihood of a prolonged confrontation. For traders, policymakers and energy analysts, the challenge of forecasting the duration of the conflict has become one of the most difficult variables shaping the outlook for global energy prices.
Volatility in crude markets is rarely driven by a single factor, yet wars in the Middle East historically carry a disproportionate influence on oil sentiment. Iran’s strategic position within the global energy system explains why markets react so dramatically to any escalation involving the country. The nation sits near the Strait of Hormuz, through which roughly one-fifth of the world’s oil supply moves each day. Even limited disruptions to shipping routes or export infrastructure can send shockwaves across global markets, forcing traders to price in the risk of supply shortages. When uncertainty is layered on top of geopolitical tensions, market reactions often become exaggerated.
Trump’s comments have introduced an unusual level of ambiguity into an already tense environment. At one moment, signals from Washington have hinted at a rapid conclusion to hostilities, suggesting that the confrontation could be contained and resolved in a relatively short period. Within hours, however, statements have shifted toward a more confrontational posture, implying a potentially extended campaign aimed at weakening Iran’s military and economic capabilities. Markets thrive on clarity, and the absence of a coherent message from the world’s largest economy has amplified the volatility.
Energy analysts and investment banks have responded by modelling different timelines for the conflict, with two scenarios emerging as the dominant frameworks guiding expectations. The first assumes a relatively short war lasting around two months. Under this outlook, the immediate shock to supply would push Brent crude prices above $110 per barrel by April, as traders react to fears of disrupted shipments and precautionary stockpiling by consuming nations. Such a surge would represent a classic geopolitical risk premium, reflecting the probability rather than the certainty of supply shortages.
Yet in the two-month scenario, the spike would prove temporary. As hostilities begin to ease and oil flows stabilise, prices would gradually retreat. Strategic petroleum reserves could be deployed to calm markets, while producers within the Organisation of the Petroleum Exporting Countries and its allies might adjust output levels to prevent an excessive price surge that could damage long-term demand. By the second half of the year, analysts expect the market to regain balance, with Brent settling close to $70 per barrel by December and averaging roughly $87 across the year. Such a trajectory would mirror earlier conflicts in which prices initially surged but later retreated once supply chains adapted.
Supporters of the shorter-war scenario argue that prolonged conflict would serve the interests of neither Washington nor Tehran. Military confrontations carry enormous financial costs and can quickly expand into broader regional crises, threatening shipping lanes and destabilising neighbouring states. Economic considerations also favour restraint. Higher oil prices may benefit exporters in the short term, but sustained spikes risk triggering global inflation and weakening economic growth, which ultimately erodes demand for energy.
Nevertheless, a second scenario has gained traction among analysts who believe the conflict could stretch to four months. Under this projection, disruptions to energy flows would last longer and potentially deepen, keeping markets on edge well into the northern hemisphere summer. Brent crude could climb toward $115 per barrel by May, reflecting the persistence of risk premiums and the growing possibility of physical supply shortages.
A prolonged conflict would amplify concerns about the security of maritime routes in the Gulf. Even isolated incidents involving tankers or offshore infrastructure could reinforce fears that the Strait of Hormuz might become a flashpoint, prompting insurers to raise shipping premiums and discouraging some operators from sending vessels through the corridor. Each incremental risk adds to the price of oil, as traders factor in the potential for supply bottlenecks.
The four-month scenario would also test the resilience of global spare production capacity. While some producers possess the ability to increase output, ramping up supply is rarely instantaneous. Infrastructure limitations, logistical challenges and strategic calculations often delay production adjustments. As a result, markets may experience an extended period of tight supply conditions before alternative flows begin to offset the disruption.
Even under the longer-war scenario, however, analysts generally expect prices to moderate later in the year. Once hostilities subside and shipping routes stabilise, the structural forces shaping the oil market would reassert themselves. Slowing economic growth in several major economies has already tempered energy demand, while the gradual expansion of non-OPEC production continues to add new barrels to global supply. These dynamics could pull Brent prices down toward $85 by the end of the year, reflecting a gradual return to equilibrium after months of instability.
For policymakers, the stakes extend far beyond the immediate fluctuations in oil markets. Energy prices remain a critical driver of global inflation, influencing transportation costs, manufacturing inputs and consumer spending patterns. A sharp and sustained rise in oil prices could complicate the efforts of central banks attempting to stabilise economies after years of pandemic-era disruptions and supply chain shocks. Governments are therefore watching developments closely, aware that geopolitical tensions in one region can ripple across the global economy.
The uncertainty surrounding the conflict has also highlighted the delicate balance between market psychology and physical supply realities. Oil traders often respond not only to actual disruptions but also to perceived risks. Rumours of attacks on infrastructure or shipping routes can trigger dramatic price movements even when no barrels have been removed from the market. This psychological component explains why crude prices have swung so widely in recent days, oscillating between panic and cautious optimism.
Energy companies and importing nations are adjusting their strategies in response to the turbulence. Some governments are reviewing contingency plans for the release of emergency stockpiles, while refiners are exploring alternative supply sources to reduce exposure to potential disruptions in the Gulf. These measures may soften the impact of a prolonged conflict, but they cannot fully eliminate the uncertainty that accompanies geopolitical crises. (IPA Service)
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