By “The Globe” Eurizon Asset Management

The signing of the Memorandum of Understanding (MoU) on 19 June between the United States and Iran led to the reopening of the Strait of Hormuz and a rapid decline in oil prices to below $70, the pre-war level.

Since 7 July, however, a new phase of hostilities has opened, with Iran carrying out direct attacks on vessels in transit, triggering a US military response, followed by a reciprocal escalation that has once again widened the scope of the confrontation and caused the number of crossings through the strait to collapse.

In this renewed phase of tension, oil prices have shown sharp volatility, trading again around $90 a barrel (WTI), while remaining well below the peaks reached in March.

Geopolitical tensions continue to be the main short-term support factor for oil, but the confrontation in the Persian Gulf has altered market balances over the medium term, paradoxically creating the conditions for a future structural increase in supply from 2027 onward — a factor that is helping to keep prices in check.

OPEC+ has certainly emerged weakened from the conflict between the United States and Iran. The United Arab Emirates left the cartel on 1 May, thereby freeing itself from the quota system. Subsequently, Iraq also announced its intention to increase production, raising the prospect of an OPEC exit should its demands not be met.

The blocking of exports from the Persian Gulf is a strong incentive to increase production for all countries not constrained by passage through the Strait of Hormuz, whether OPEC+ members or not. June production data, despite traffic through the strait being only partially restored, confirmed this trend, with many OPEC+ countries increasing output beyond their assigned quotas.

In this context, Saudi Arabia will not be able to play the role of oil’s central bank, at least until the market normalises. The Saudis have significant spare capacity (unused but immediately available production capacity) and very low production costs. They could therefore trigger a price war, as in 2020, to reshape the market to their advantage. However, without the physical ability to export, this scenario is not currently workable.

In the short term, oil prices will continue to be volatile, especially as commercial stocks in OECD countries remain at moderate levels, limiting the market’s ability to absorb any further declines in supply.

China, however, is an important bearish factor, as demand has softened in recent years, counterbalancing the market’s excesses. Above $80, China sharply curbs its purchases to the point of influencing crude prices, thereby capping gains. From March to June, China’s monthly oil imports plunged by 51%.

Setting all these factors aside, the market still sees a return to normality over the next six to nine months as the more likely scenario, with the return of currently blocked supply adding to growth from OPEC+ and other producing countries.

Estimates point to the emergence of a supply surplus of around 4 Mb/d (million barrels per day) by spring 2027. For now, however, the supply “counter-shock” remains distant in the absence of significant de-escalation.

Defining key oil price levels:

Below $50 — US shale oil comes under pressure and Saudi Arabia faces calls to cut production. There is a tangible risk of a price war as a Saudi response to regain market share.

$50 to $65 — China buys aggressively to build inventories, a strategy it has pursued since the post-Covid reopening.

$65 to $80 — This zone represents the equilibrium range, where the main bearish and bullish forces offset each other — the band in which oil fluctuated throughout 2025 and much of 2024.

$80 to $100 — All producing countries realise a significant benefit in terms of budget balance, but China stops buying oil, creating a bearish force, as seen in the sharp decline in imports.

Above $100 — Gasoline in the United States rises above $4 per gallon, causing a loss of political consensus — a scenario any sitting US administration seeks to avoid and which generally prompts it to intervene globally to boost production. Beyond this threshold, there is a real risk of impact on global growth

Find all our Strategic Case articles