The war between the United States and Israel on one side and Iran on the other, which began in late February 2026, immediately shut down the Strait of Hormuz – an artery through which, in peacetime, roughly 20 million barrels of oil per day flowed, equal to about 20% of global petroleum consumption. The IEA called the disruption “the largest supply outage in the history of energy markets,” surpassing both the 1973 OPEC embargo and the 1979 Iranian Revolution in terms of total barrels removed from the market.
Brent crude spiked above $140/bbl at the peak. By May, as ceasefire negotiations progressed, it retreated to $92-93/bbl, losing nearly 20% from the highs. And it is precisely now, with global markets operating in a state of anticipation ahead of a potential agreement, that the key question emerges: what does “normalization” actually mean, and how quickly will oil return to it?
Bank analysts highlight an important signal that typically precedes a full settlement: regional oil markets are already showing signs of normalization. The price spread between Dubai crude (Asia’s benchmark) and Brent, which blew out to extreme levels in the first days of the war, has collapsed. The gap between “physical” and “paper” oil prices, where spot traded far above futures, has also closed – not because futures rallied, but because spot prices fell back toward futures.
Timeline: From $64 to $140 and Back
| Year | Event | Description |
| Jan 2026 | Pre‑War Equilibrium: Brent at $64/bbl | Morgan Stanley projected $60 for all of 2026. The market expected a surplus driven by rising non‑OPEC+ production and the restoration of OPEC+ quotas. The geopolitical risk premium was minimal. |
| Late Feb 2026 | War Begins: Brent Above $113 in the First Week | Strikes on Iran’s nuclear infrastructure. The Strait of Hormuz is effectively shut. Goldman expects a loss of 11-17 mb/d of supply. The IEA reports global output falling to a four‑year low. Coordinated releases from IEA‑member strategic reserves begin. |
| Mar-Apr 2026 | Crisis Peak: Dated Brent Reaches $140/bbl | Iran’s new Supreme Leader vows to keep Hormuz closed as leverage. Goldman revises its outlook: if the closure lasts another month, Brent should trade $100-120. The US releases 172 million barrels from the Strategic Petroleum Reserve. Flows through the strait collapse to ~3.8 mb/d, compared with 20 mb/d before the war. |
| May 2026 | Negotiations: Brent Drops 19% in a Month to ~$92 | The US and Iran “mostly agree” on a 60‑day memorandum. Markets react – cautiously. Attacks on vessels in Hormuz continue. UBS notes: “no evidence of real improvement in traffic.” Insurance premia for tankers remain prohibitive without diplomatic guarantees. |
| Jun 2026 | The Current Moment: Brent ~ $90, Target $85 | Goldman observes that regional markets have become “overbought,” and the physical/paper spread has closed. Full normalization is still far away – but the direction is set. Goldman removes its projections for a Fed rate cut in 2026 due to oil‑driven inflation pressure.
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What Has Been Disrupted and How Oil Flows Today
The closure of the Strait of Hormuz exposed the core vulnerability of the global oil system: there are shockingly few alternative routes. Export capacity that bypasses the strait does exist in theory, but its combined potential covers only about one‑third of pre‑war flows.
IEA data for April 2026 confirms that with Hormuz shut, alternative routes expanded throughput from under 4 mb/d to 7.2 mb/d, including:
- Saudi Arabia’s Red Sea terminals,
- the Fujairah export hub in the UAE,
- the ITP pipeline (Iraq-Ceyhan, Turkey).
This remains critically insufficient: the shortfall exceeded 10 mb/d, even after coordinated releases from IEA‑member strategic reserves.
Strategic Reserves Are Running Dry
According to research by Robin Brooks (Former Chief Economist at the IIF and Chief FX Strategist at Goldman Sachs) and Ben Harris (Brookings Institution), the temporary supply buffers that helped contain price spikes in the first months of the conflict are now nearly exhausted.
This means that even under a prolonged “no war, no peace” scenario, there is no remaining cushion to absorb additional shocks.
Four Stages of Normalization: From Signing to Pre‑war Levels
Even under a full peace agreement, the market’s return to its pre‑February 2026 state will be gradual and multi‑stage.
According to Oxford Energy, complete restoration of export flows will take at least six months after the reopening of the Strait – factoring in infrastructure repairs, tanker‑fleet repositioning, and the recovery of insurance coverage.
Morgan Stanley points out directly:
“Even if the Strait reopens soon, production may take months to normalize, making the price shock more persistent.”
The bank’s previous expectations of $60 has been revised upward to $80-90 as the new baseline for 2026, even under a peace scenario.
Three Scenarios for Oil After Negotiations
| Bullish Scenario – Rapid Peace | Base Case – “Fragile Ceasefire” | Bearish Scenario – Negotiations Collapse |
| Full agreement, Hormuz fully reopened | 60‑day memorandum, partial traffic | Strait remains closed or partially blocked |
| $80-90 | $90-100 | $120-150 |
| The US and Iran sign a comprehensive deal. The Strait reopens without restrictions. Tanker traffic recovers within 2-4 weeks. Brent falls toward $85 (Brooks’ target), then gradually declines to $75-80 by year‑end as production returns. US gasoline prices settle around $4 per gallon. This is the base case for most banks if the conflict is resolved quickly. | A ceasefire without guarantees. Hard‑line factions in Iran continue sporadic attacks. Insurers return slowly. The market prices in a $10-15 geopolitical premium. JPMorgan expects $97 on average for the year if the Strait reopens in early June. Fitch projects $87 for Brent in 2026 under an extended ceasefire. This is the most likely scenario. | Iran rejects the terms. Hormuz stays blocked for months or longer. Goldman sees Brent above $120 in Q3 if the closure persists. Macquarie allows for $150+ in an extreme case. IEA strategic reserves are depleted. A global recession becomes the baseline projection. The Fed cannot cut rates, raising the risk of 1970s‑style stagflation. |
Major Banks And Agencies: Brent Expectations for 2026
| Bank | Brent Expectations 2026 | Peace Scenario | Commentary |
| Goldman Sachs | $90 (end‑2026) | $85-90 | Revised its estimates upward from $80 due to slower supply recovery. Removed its Fed rate‑cut projection for 2026. Cumulative supply losses exceed 800 million barrels. |
| JPMorgan | $97 (annual average) | $85-95 | Expects the Strait to reopen in early June but maintains a high average outlook due to slow production recovery. |
| Morgan Stanley | $80-90 (new normal) | $80-90 | Raised its projections from $60 (pre‑war) to $80-90. “Even with a quick reopening, production may take months to normalize,” notes Martijn Rats. |
| Fitch Ratings | $87 (avg 2026) | $70 from Sept. | Base case: Hormuz reopens in late July. $100-110/bbl in May-July, $80 in August, $70 from September. Market shifts to surplus in Q4. |
| Rabobank | $103 / $93 (Q3 / Q4) | $85+ in 2027 | 2027 prognoses cut from $88 to $85. Expects gradual unwinding of the risk premium but no return to pre‑war levels. |
| City | $68 (under peace) | $65-70 | Most pessimistic on price under normalization. Base case: OPEC+ surplus pressures prices in 2026-2027. Pre‑war projections were $71. |
| UDS | $72 (avg 2026) | $70-80 | Even with reopening, short‑term traffic remains minimal. “Iranian loadings in May were below 0.3 mb/d.” Expects gradual normalization. |
| Robin J. Brooks (IIF) | $85 (target) | $85 ± 5 | Under a peace deal, immediate move toward $85. Notes that Brent’s war‑related rise barely exceeds the comparable period after Russia’s invasion of Ukraine – “which seems too much.”
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The bank consensus is clearly split into two camps: those who see a persistent $20-30 premium above pre‑war levels (Goldman, JPMorgan, Morgan Stanley), and those who expect a return to $65-70 as the supply-demand balance normalizes (Citi, BofA, UBS). The key variable is the speed of production recovery in the Persian Gulf, not merely the reopening of the strait.
Which Part of the “War Premium” Will Remain Permanently
Analysts introduces a key distinction: between the “normalization” that has already occurred (the narrowing of regional spreads, the closing of the physical/paper gap) and the normalization that still lies ahead. Even under a perfect peace agreement, several factors will keep the oil premium above pre‑war levels.
Persistent Risk Factors after Peace
- Insurance uncertainty. Insurers will not return immediately. War‑risk premia for vessels passing through Hormuz will remain elevated for several more months – until a track record of safe passage is established. This mechanically increases the cost of a physical barrel of oil.
- Iranian hard‑liners as a tail risk. Analysts states directly: “In reality, Iranian hard‑liners will likely try to sabotage the peace agreement, including missile strikes on passing vessels.” The market cannot fully ignore this probability.
- Depletion of strategic reserves. Coordinated SPR releases by IEA countries proceeded at twice the planned pace. Replenishing reserves will itself create additional demand in the coming months, supporting prices.
- Slow production recovery. Oil infrastructure recovers more slowly than logistics. Even with Hormuz open, production in the Persian Gulf may take 3-6 months to return to pre‑war levels. Oxford Energy estimates full normalization of export flows – including tanker repositioning – at a minimum of 6 months after the strait reopens.
What This Means for a Forex Trader and a Broker
1. Oil and “oil currencies”
CAD, NOK (in terms of oil revenues) all show high correlation with Brent. Under a peace scenario, one should not expect oil‑linked currencies to strengthen against the dollar as oil falls toward $85: the price decline may neutralize the positive effect of reduced risk.
2. The dollar and Fed inflation
Goldman removed expectations of a Fed rate cut in 2026 specifically because of oil‑driven inflation. If oil normalizes to $85, room for easing will open, which would weaken the dollar.
3. Risk of overpricing the peace scenario
The market has already priced in a large part of the “peace discount”: Brent fell from $140 to $90. If the agreement turns out to be “fragile,” a move back to $100+ is possible within a few trading sessions. Oil volatility remains abnormally high.
4. $64 by end‑2026 is no longer a relevant benchmark
Morgan Stanley, Goldman, and Fitch agree: even in the best scenario, Brent will finish 2026 in the $70-90 range. The pre‑war $60-64 level is possible only in 2027, once the OPEC+ surplus returns and production fully normalizes.
5. Signals of early normalization
The closing of the Dubai spread and the physical/paper gap are indicators of the “first wave” of normalization. The next signal: the resumption of insurance coverage for vessels passing through Hormuz. After that, Iranian loadings rose above 1 mb/d.
6. The gas component
European and Asian LNG prices rose 54-63% due to the shutdown of Qatari LNG transit. Gas‑market normalization will take even longer than oil – and will be an additional driver for EUR, JPY, and energy‑importing currencies.
“Normalization has already occurred along several dimensions. If Brent falls to $85 – that will still leave a substantial risk premium. But that is exactly what normalization means at this moment.”
Robin J. Brooks, IIF / Substack, May 30, 2026