Key Takeaways:

• This may be more than a temporary oil shock. Geopolitical escalation in Iran intersects with constrained structural supply, raising the probability of prolonged disruption rather than a short-lived risk premium.
• Energy markets face tightening supply buffers. Limited OPEC+ spare capacity and Strait of Hormuz disruption increase the likelihood that crude remains elevated above $60/bbl.
• Demand megatrends continue to accelerate. AI, electrification and infrastructure expansion are reinforcing long-term energy and materials demand at a time when supply flexibility is deteriorating.

As we have noted recently, geopolitics matter greatly when it comes to global oil and LNG prices. The attacks on Iran and the risk of escalation in a region central to global energy flows are a reminder of how quickly supply concerns can resurface. While geopolitical machinations clearly impact short-term pricing and create a “risk premium,” it is ultimately the balance between supply and demand that determines the fundamental direction of prices.

The term “risk premium” suggests a temporary effect and often it is. It is not uncommon to see crude prices jump $5–$10/bbl following major international disruptions. Markets have, at times, grown almost impervious to one-off events. This moment feels different.

Rather than a transitory shock, we may be entering a situation that lasts months. Supply of crude oil and LNG is very likely to be disrupted, perhaps for a meaningful period. The implications extend beyond headline risk and into the structural functioning of the energy ecosystem.

Iran Oil Risk Premium vs. Structural Supply Disruption

Recent developments have distinctly, but not unexpectedly, altered the calculus of crude oil and LNG prices. Initial equity and commodity reactions in the Gulf region reflected knee-jerk volatility, with moves in the 5–10% range that partially settled. Investors initially hoped for a contained outcome.

We continue to lean toward the scenario that negotiations are unlikely to materialize in a durable way, increasing the probability of a deadly, disruptive and prolonged conflict. The structural impacts could span infrastructure, transportation, production and refining. Even early actions are likely to create ripple effects across the entire oil and LNG ecosystem.

Several developments reinforce this view:

• Leadership vacuum and retaliation risk
  The death of senior Iranian leadership figures and vows of revenge introduce profound uncertainty. A power vacuum increases the probability of responsive actions taken with limited restraint.

• Strait of Hormuz disruption
  Shipping through the Strait has halted amid tanker attacks, and major regional ports have suspended operations. Roughly 15–20% of global crude oil and approximately 20% of LNG flows through the Strait of Hormuz. The longer this persists, the more profound the impact on global energy markets.

• Limited OPEC+ offset
  OPEC+ has agreed to resume production increases, adding 206,000 bbl/d, only modestly above prior plans. This suggests the group is either unwilling or, in our view, unable to raise production significantly enough to offset potential regional interruptions.

• Gulf states isolate Iran
  Gulf states—including Saudi Arabia, the UAE, Qatar, Oman, Kuwait and Bahrain—have hardened their stance, virtually isolating Iran. This raises the risk of retaliatory strikes and reinforces the likelihood of a severe and extended conflict.

Taken together, these factors point toward oil prices reflecting this situation over a longer horizon than just days. Longer-term impacts could suggest a range of $70–$80/bbl under a prolonged disruption scenario, however, a swift diplomatic resolution or de-escalation could put downward pressure on prices.

Oil Price Scenarios: Why Crude Could Stay Above $60 per Barrel

Even before the most recent escalation in Iran, scenario analysis suggested crude prices were likely to remain structurally elevated:

• Prior to negotiations: $2–$7/bbl premium (to $54/bbl WTI)
• Negotiations begin: $4–$13/bbl
• Attacks – short term: $13–$17/bbl
• Attacks – long term: $15–$26/bbl
• Aggressive OPEC+: $6–$15/bbl

The scenarios above are hypothetical and for illustrative purposes only and do not constitute a prediction or guarantee of future commodity prices or fund performance.

The takeaway was that prices were likely to remain above $60/bbl for an extended period. The emerging structural disruptions only reinforce that view and potentially push the equilibrium higher. Alternatively, a rapid de-escalation or demand slowdown could result in materially lower prices.

The Demand Side: A Megatrend Accelerating

At the same time, the global economy faces the reality of rapidly expanding AI influence and the massive amounts of energy, and critical minerals, required to power it. This appears to be a megatrend.

AI is not simply “turning on your computer.” It demands scalable power generation, transmission infrastructure and material inputs at the very front edge of the ecosystem. Ensuring sufficient energy and accessible materials is becoming a real challenge.

As demand for natural resources continues its march up and to the right, perhaps even inflecting upward, supply conditions are being fundamentally disrupted.

The Investment Case

In this environment, the “zero terminal value” narrative for traditional energy appears to have evaporated. Instead, we see:

• Cheap valuation multiples
• Rock-solid balance sheets
• Strong dividend and share repurchase commitments

Crude oil, LNG and the companies that produce them tend to do what they are supposed to do when they are supposed to do it. In a world of rising structural demand and constrained supply, the outperformance of this sector can continue.

This moment feels different, not because geopolitics matter more than before, but because they are intersecting with tightening structural supply and accelerating long-term demand.

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