Key Moments
- Brent crude has fallen back from recent highs near USD119/bbl, but OCBC strategists believe geopolitical risk remains elevated.
- OCBC’s base case projects Brent easing to a USD85–70 range over the next 6–12 months, despite ongoing supply concerns.
- Tension around the Strait of Hormuz is viewed as “controlled disruption” rather than a resolution, with US-Iran conflict entering its sixth week.
Strategists Warn De-escalation Hopes May Be Premature
OCBC strategists Sim Moh Siong and Christopher Wong contend that optimism in the market about a potential de-escalation in the US-Iran conflict appears unwarranted when it comes to Brent crude pricing. They note that, although Brent has retreated from levels near USD119, they still see a meaningful risk premium embedded in prices due to developments around the Strait of Hormuz.
The strategists characterize the current situation at this key chokepoint as one of “controlled disruption” rather than a true resolution. In their assessment, ongoing geopolitical tensions continue to pose a threat to oil supply even as they maintain a base case outlook for Brent to moderate into a USD85–70 range over the coming 6–12 months.
Market Reaction and Macro Backdrop
Sentiment in financial markets has recently improved on expectations that the conflict might cool. As a result, Brent crude pulled back from early-week highs near USD119/bbl. At the same time, expectations for more aggressive interest rate hikes by major central banks were scaled back, and the USD traded in a mixed fashion against G10 currencies.
Despite these shifts, OCBC’s analysis suggests that geopolitically driven supply risks remain present and continue to underpin an elevated risk premium in oil prices.
Strait of Hormuz: Managed Flows, Not Full Resolution
Developments around the Strait of Hormuz are central to OCBC’s cautious stance. According to the strategists, reports that Iran is working with Oman on a protocol to manage traffic through the Strait help lower the probability of a complete shutdown. However, they argue that this framework indicates “managed restrictions rather than a clean reopening,” implying that disruptions to oil flows cannot be fully ruled out.
In parallel, political rhetoric from the United States has intensified. As noted in the report, “President Trump ramped up his threats to destroy Iran’s power plants and bridges unless it reopens Strait of Hormuz by his Tuesday deadline.”
Conflict Timeline and Ongoing Risks
The broader conflict context continues to weigh on the outlook. As highlighted in the analysis, “The US-Iran conflict has entered its sixth week with no clear path to de-escalation.” This ongoing uncertainty is a core reason why OCBC believes it is too early to assume that the geopolitical risk premium embedded in Brent will dissipate quickly.
Brent Outlook: Base Case vs Geopolitical Premium
While OCBC maintains a base case scenario in which Brent prices gradually ease into a USD85–70 band over the next 6–12 months, the strategists emphasize that this view is conditional on supply disruptions remaining contained. The combination of controlled but persistent tensions in the Strait of Hormuz and continued strong rhetoric from the United States supports their view that risk pricing in oil is likely to stay elevated for now.
| Factor | Current Assessment |
|---|---|
| Recent Brent price action | Retreated from highs near USD119/bbl |
| Geopolitical backdrop | US-Iran conflict in its sixth week with no clear de-escalation path |
| Strait of Hormuz status | “Managed restrictions” via Iran-Oman traffic protocol, not full reopening |
| US political stance | Heightened threats from President Trump tied to reopening of the Strait |
| OCBC base case for Brent | Easing to USD85–70 over 6–12 months |
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