Oil prices, specifically Brent crude, could rise to $70 per barrel if tensions between the US and Iran escalated amid the ongoing talks in Oman, according to experts.
Prices maintained a steady course on Friday, reflecting a cautious sentiment among global investors who were intently focused on developments emerging from crucial, high-stakes diplomatic talks.
US-Iran talks and $70 Brent crude scenario
“The main focus today is likely to be on the talks between Iran and the US. In the run-up to the talks, oil prices came under pressure because this fueled hopes of an easing of the conflict, which had previously threatened to escalate,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said.
However, both sides already appear to disagree on the content of the talks. At the start of the talks, Iran dampened expectations of a quick agreement.
Lambrecht said:
Should the situation become tense again, the price of a barrel of Brent crude oil could rise back to USD 70.
These negotiations, taking place in Oman, involve the United States and Iran and are viewed as pivotal in de-escalating simmering tensions in the Middle East.
The commodity market’s equilibrium was tenuous, underscored by pervasive anxieties over the potential for a renewed conflict in the region that could severely disrupt the global oil supply chain.
The outcome of the Oman talks is therefore seen as a key factor that could determine the near-term volatility and direction of crude benchmarks.
A successful diplomatic resolution is expected to ease supply concerns and potentially pressure prices downwards, while a breakdown in communication or an escalation of rhetoric could quickly send prices soaring amid renewed geopolitical risk premiums.
“Investors are watching the US-Iran talks, and their sentiment is shaped by the outcome of these talks,” Tamas Varga, an oil analyst at brokerage PVM said.
He said the market is currently anticipating the results of these negotiations.
The ongoing tension between Iran and the US, stemming from a lack of consensus on their meeting agenda, is fueling investor anxiety over geopolitical risks.
Iran insists on focusing solely on nuclear issues, a stance that clashes with the United States’ broader demands to include discussions on Iran’s ballistic missile program and its financial and logistical support for armed groups in the Middle East.
This diplomatic deadlock carries significant economic implications, particularly for global energy markets.
Strait of Hormuz: critical chokepoint
Any potential escalation of hostilities or a breakdown in negotiations could severely disrupt international oil flows.
This is because approximately one-fifth of the world’s total oil consumption must pass through the narrow Strait of Hormuz, the critical maritime chokepoint situated between Oman and Iran.
The threat of closure or conflict in this vital waterway keeps the price of oil volatile and investors on edge.
The Strait of Hormuz is a key export route for crude oil from several major producers.
Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, and Iran (all OPEC members) ship the majority of their crude through this strait.
Should ongoing talks between the US and Iran reduce the risk of regional conflict, the downward pressure on oil prices could intensify.
Capital Economics analysts project oil prices to drop to $50 a barrel by the end of 2026.
Their note argues that the influence of “geopolitical fears will give way to weak fundamentals,” citing the recovery of Kazakhstan’s oil production as a key factor contributing to this decline.
India’s trade deal and the future of Russian oil imports
A new bilateral trade agreement has been reached between the US and India, setting the US import tariff on Indian goods at 18%.
This represents a significant reduction from India’s previous cumulative tariff of 50%, which included a 25% base tariff and an additional 25% punitive tariff imposed last fall due to India’s Russian oil purchases.
A core condition of the agreement is India’s commitment to cease future purchases of Russian oil.
However, important details remain unresolved, particularly concerning a potential transition period for refineries to complete existing Russian oil orders, according to Carsten Fritsch, commodity analyst at Commerzbank.
As of now, Indian refineries have not yet received official government directives to stop buying Russian oil.
In December, India’s crude oil imports from Russia totalled 1.3 million barrels per day (bpd), as reported by the IEA.
This figure represents the lowest import level since October 2022 and marks a decrease of 700,000 bpd compared to October.
Fritsch said:
Finding other suppliers for the remaining volume is likely to be challenging and could lead to rising oil prices.
Russian oil discounts offered to Chinese buyers reached record highs this week, according to traders, amidst signs that India is continuing to decrease its purchases of Russian crude.
In January, China’s seaborne imports of Russian oil reached a record high of 1.7 million barrels per day, according to Kpler data.
Conversely, deliveries of Russian oil to India dropped to 1.1 million barrels per day, marking the lowest level since November 2022.
US President Trump wants India to source its oil from the US and Venezuela instead.
“However, due to its higher density and sulfur content, Venezuelan oil is not a perfect substitute for Russian oil,” Fritsch said.
The same applies to US shale oil, which is lighter and has a lower sulfur content than oil from Russia.
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