"Oil shock": analysts named scenarios amid US pressure on Iran and Venezuela

Risks of a new "oil shock" are increasing amid US pressure on Iran and Venezuela, analysts warned. According to their estimates, a sharp rise in oil prices could accelerate inflation, provoke a correction in the markets and complicate the prospects for interest rate cuts by major central banks.

Analysts warn that the risk of a new oil shock - a situation in which oil prices skyrocket and set off a chain reaction of negative consequences for markets and the economy - is increasing amid the escalation of a number of geopolitical conflicts, writes Business Insider.

March futures for Brent crude oil rose by 10% over the last week. On Tuesday, January 13, they momentarily added up to 3%, and on January 14, they rose another 1%, exceeding $66 per barrel. This is the maximum level of Brent prices since November, notes BusinessInsider.

Oil quotations are rising against the backdrop of the US attack on Venezuela and Washington's threats to resort to military action against Iran. Both countries are among the world's most important producers of crude oil, and Iran is also a member of OPEC. According to Raymond James analyst Pavel Molchanov, exports from this country account for 2% of global supplies.

A rise in Brent crude oil prices to $80 a barrel could probably be considered an oil shock, Interactive Brokers senior economist Jose Torres told Business Insider. In such a scenario, he said, the sell-off could hit stocks and bonds simultaneously, as higher energy prices could stoke inflation and put pressure on economic growth. Higher inflation could also mean the U.S. Federal Reserve would have less room to cut interest rates going forward - a factor that has been one of the key drivers of growth in risk assets over the past year.

"The risk of an oil shock is definitely there, especially as stocks approach the mark of three really strong years in a row," Torres said. The past two years have seen double-digit gains in the S&P 500 index.

Escalating tensions over Iran have raised the likelihood of a "massive global oil supply shock" to about 40%, said Matt Gertken, chief geopolitical strategist at BCA Research, He said that if the regime in Iran falls and conflict in the region intensifies, it could lead to "significant losses" in Middle East oil production.

"Global and U.S. equities are vulnerable to a correction in the short term amid inflated valuations, an overbought market and rising geopolitical risks," Gertken added.

Deutsche Bank analysts also pointed to the risk that markets could face an oil shock as early as this year. "A positive oil supply shock has the potential to significantly affect inflation expectations and inflation risks," the bank wrote in a recent note to clients, citing such a scenario as a key risk to its economic outlook.

Jeff Curry, longtime commodity strategist and director of energy strategy at Carlyle, added that he believes oil prices could continue to rise. Among the factors, he cited strong demand for the commodity and a "fairly high" level of geopolitical risks that could make crude even more expensive.

"The situation in Venezuela has a very strong impact on geopolitical risks. For oil importers - whether it's China, India or Europe - the world has become a much more dangerous place," Curry told CNBC last week.

Earlier, Goldman Sachs said that the volatility of oil quotations may increase against the background of supply growth, which will lead to an excess of oil on the market, as well as geopolitical risks associated with Russia, Venezuela and Iran. The investment bank maintained forecasts of the average price for 2026 for Brent and WTI at $56 and $52 per barrel, respectively.

As oil reserves accumulate in OECD countries - a group of developed economies, including the U.S. and European countries - the cost of Brent and WTI will fall to $54 and $50 per barrel in the fourth quarter of 2026, predicted Goldman Sachs (this is below current prices by 14.3% and 14.7%, respectively). Oil prices will only begin to recover in 2027, when the market will return to deficit as non-OPEC supply growth slows, analysts predicted. In 2030-2035, the average prices of Brent and WTI, according to Goldman Sachs estimates, will be $75 and $71 per barrel.

This article was AI-translated and verified by a human editor