Oil Markets Brace for Extended Conflict and Elevated Prices Through 2027

ICE Brent crude futures for January 2027 are trading at $102.59 per barrel, with December 2027 contracts holding at $84.75. This represents a stark departure from the sub-$70 levels observed in late 2025. Despite reports of oil flows from the Persian Gulf returning to pre-war volumes, persistent instability and daily strikes in the Strait of Hormuz have maintained a significant war premium. The reliance on ship-to-ship transfers has further strained the tanker market, driving up freight costs and forcing producers to discount crude to maintain buyer interest.

Refined fuels face an even more precarious outlook. Iran’s retaliatory strikes have targeted Middle Eastern refineries, leading the International Energy Agency to authorize the release of up to 50 million barrels of diesel from collective inventories to mitigate record-high prices. While the IEA projects a rebound in global supply to 108.3 million barrels daily, this forecast assumes a level of regional stability that remains elusive. As central bankers and governments grapple with the inflationary impact of these energy costs, the window for fiscal relief is narrowing. With global economic resilience reaching its limits, the reliance on emergency measures offers only a temporary buffer against a structural shortage in refining capacity that threatens to weigh on growth for years to come.