A recent peace agreement between the United States and Iran has sparked hopes for global trade, particularly concerning oil flow through the critical Strait of Hormuz. While Brent crude prices initially saw a decline following the announcement, market analyst Emkay Global warns of a potential short-term surge, possibly pushing prices beyond $90 per barrel.
The deal, which aims to open the Strait of Hormuz and ease international trade sentiment, initially led to a dip in oil markets. Brent crude rates had fallen by 5% on Monday, closing at $80.75 per barrel, and were trading below the $85 mark on Tuesday, settling at $82.66. Many anticipated further declines as markets reacted positively to the peace pact.
However, Emkay Global has identified a "material risk" of continued physical market imbalances that could drive prices upward in the coming weeks. The brokerage points to anticipated delays in normalizing oil supply through the Strait of Hormuz, which could take "weeks, if not months," to return to pre-crisis levels. This, combined with a potential return of pent-up demand, especially from China, could create upward price pressure.
Despite this short-term risk, Emkay Global maintains a long-term forecast of falling prices. The firm expects a meaningful and sustainable decline beyond the first half of fiscal year 2027 (1HFY27), projecting Brent crude to reach $70 per barrel by the end of FY27. For FY27 overall, their forecast remains at an average of $90 per barrel, with elevated prices (averaging $95/bbl) in 1HFY27 followed by a drop to $85/bbl in 2HFY27.
Former US President Donald Trump confirmed the completion of the deal in a Truth Social post, stating, "The Deal with the Islamic Republic of Iran is now complete." He announced the opening of the Strait of Hormuz without a toll system and the end of the US naval blockade of Iran, urging "Ships of the World, start your engines!" Trump later specified that the strait would open on Friday, coinciding with the official peace agreement signing ceremony in Switzerland, allowing oil to flow "for the Region, and the World!"