In a market update sent to Rigzone late Thursday, Rystad Energy revealed that it has revised its U.S.-Iran scenario framework “following a renewed deterioration in security conditions around the Strait of Hormuz”.
Rystad – which pointed out in the update that Brent crude had climbed “sharply” above $85 per barrel, from $72 at the start of the month, as maritime attacks resumed and Washington reimposed its naval blockade on Iranian ports – outlined four U.S.-Iran scenarios in its update but said a “narrow, face-saving agreement” remains its base case.
The company went on to warn, however, that the combined probability Rystad now assigns to no substantive agreement has risen to 55 percent and said the August 16 expiry of the 60-day memorandum of understanding negotiation window “is now the critical near-term date for oil markets”.
In its update, Rystad pointed out that its four potential U.S.-Iran scenarios comprise a “full resolution”, which it assigns a five percent probability, a “narrow deal”, which it puts at 40 percent, a “stalemate”, which Rystad has at 35 percent, and a restart of fighting, which Rystad puts at 20 percent. The company noted that these four scenarios imply a wide range of geopolitical risk premiums in the oil price.
“A full resolution, assigned just a five percent probability, would largely eliminate the acute geopolitical premium, leaving only a residual $0 to $2 per barrel,” Rystad noted in its update.
“A narrow deal would sustain a $5 to $10 per barrel premium, reflecting the deferral of the nuclear issue and Iran’s retained leverage. Stalemate would sustain $10 to $15 per barrel, while renewed fighting carries $15 to $20 per barrel,” it added.
“With the narrow deal at 40 percent and stalemate plus fighting representing 55 percent of the probability distribution combined, the probability-weighted risk premium in oil prices is considerably higher today than it was in mid-June, when the MoU appeared to be holding,” Rystad warned.
“The framework Rystad uses to assess these scenarios pivots around 16 August, when the 60-day MoU window expires. Before that date, the key variables are the intensity of military and maritime attacks, the degree to which the U.S. blockade is enforced, Iranian oil export volumes, and the pace of any initial recovery in commercial traffic through the strait,” Rystad said.
“After 16 August, the focus shifts to whether any political arrangement holds and how far the shipping market can adapt to a continuing threat environment,” it continued.
Base Case
Rystad highlighted in its update that its base case scenario is a narrow deal and a “managed strait”, noting that a narrow deal remains the most politically workable landing zone for both sides.
“The U.S. has strong incentives to restore strait traffic, limit direct military exposure, and demonstrate results ahead of November midterm elections,” Rystad said.
“Iran has a substantial economic package available under the 14-point MoU framework, including phased access to frozen assets, oil export waivers, and a path towards broader sanctions relief,” it added.
“Crucially, a narrow deal allows Iran to obtain meaningful economic benefits without first settling the nuclear issue or surrendering its leverage over the strait,” it continued.
Rystad predicted in its update that, under this scenario, attack intensity would decline in the coming days and that an interim agreement would be reached by or around August 16. The U.S. blockade would also be gradually relaxed rather than strictly enforced, according to Rystad, which projected that strait traffic would reach around 10 million barrels per day by mid-August and around 14 million barrels per day by October, where it would stabilize.
“Iran retains meaningful but constrained leverage over commercial passage and a geopolitical risk premium of approximately $5 to $10 per barrel persists, reflecting the absence of any final nuclear settlement,” Rystad predicted under this scenario.
Stalemate Scenario
Rystad pointed out in its update that a stalemate is now its second most likely outcome.
“In this scenario, negotiations remain open but fail to produce a meaningful agreement, as neither side makes the core concessions required on nuclear restrictions, sanctions relief or maritime leverage,” Rystad warned.
“Both sides apply calibrated military pressure while avoiding the most escalatory strikes. Fragile ceasefires are repeatedly extended and periodic incidents continue, creating a pattern of contained but unresolved tension,” it added.
Rystad predicted in its update that a stalemate does not mean zero traffic through the strait indefinitely.
“Over time, shipowners, insurers, governments and traders learn to operate around the risk through selective U.S. enforcement, bilateral assurances, and carefully timed convoys,” it projected.
“Rystad estimates strait traffic rises from around 2.5 million barrels per day in August to approximately eight million barrels per day by November before stabilizing,” it added.
“Around seven million barrels per day continues to use bypass routes. Sanctions remain in place with only ad hoc waivers. A persistent geopolitical risk premium of $10 to $15 per barrel is assumed under this scenario,” it continued.
Fighting Restarts Scenario
The fighting restarts scenario represents sustained escalation rather than another isolated exchange, Rystad noted in its update.
“Negotiations collapse, direct U.S.-Iran military activity continues and broadens, and regional spillover risks to Gulf energy infrastructure increase,” it warned.
“Iran actively exercises its ability to restrict commercial passage while the U.S. maintains maximum sanctions enforcement and a full naval blockade of Iranian ports,” it added.
Rystad went on to project that, even under this scenario, traffic is not completely static.
“Dark fleet movements, selective passage for vessels linked to friendly states, and temporary periods of lower military intensity could produce modest increases, with traffic edging towards 3.5 million barrels per day by November,” it predicted.
“This scenario carries a geopolitical risk premium of $15 to $20 per barrel. Its probability has risen to 20 percent because recent events demonstrate how quickly a fragile diplomatic framework can unravel through miscalculation or attacks on commercial shipping,” it warned.
Considerably Less Comfortable Base Case
In the update, Jorge Leon, senior vice president and head of geopolitical analysis at Rystad, said, “the narrow deal is still our base case, but it has become a considerably less comfortable one”.
“Both sides have strong economic incentives to avoid a complete breakdown, and that is what keeps the narrow deal alive at 40 percent,” he added.
“Washington wants oil prices down and a diplomatic result ahead of the November midterms. Tehran has a substantial economic package on the table, including access to frozen assets and export waivers, that it does not want to walk away from permanently,” he continued.
“The problem is that the MoU has not moved the needle on its hardest elements: nuclear limits and who controls commercial passage through Hormuz,” he warned.
“After August 16, the question becomes whether the shipping market can adapt to a continuing threat rather than whether diplomacy can resolve one,” Leon went on to state.
The Saga Continues
In a research note sent to Rigzone on Thursday by the HSBC team, HSBC analysts, including Paul Bloxham, HSBC Chief Economist, Australia, NZ & Global Commodities, outlined that the U.S.-Iran “saga continues”.
“In the past two weeks the Memorandum of Understanding between the U.S. and Iran has broken down, conflict has resumed, a U.S. blockade has been re-established, and new arrangements for fees on passage through the Strait of Hormuz have been floated,” they highlighted, noting that “the disruption is not over yet”.
As a result, the analysts revealed that the flow of traffic through the Strait of Hormuz has been “heavily curtailed once again”.
“In the first week of July, a daily average of 29 ships traversed the strait, but over the past week this has slowed markedly to 13 ships a day on average – the pre-war normal was around 138 ships a day,” they highlighted.
The analysts went on to warn that “there remains considerable uncertainty as to what a ‘new normal’ will look like” but predicted that a “return to the old, pre-war, normal seems unlikely”.
The HSBC analysts pointed out in the note that the Brent oil price had fallen to “as low as $70 per barrel in early July” and risen by around 20 percent “to be back to around $85 per barrel”.
“This is, of course, well below the recent peak reached in late April, above $120 per barrel,” they said.
“The key factors that have kept global oil prices from reaching the previously feared extremes have been demand compression, particularly in Asia, and the release of strategic reserves, which has allowed the U.S. to boost its oil exports by circa three million barrels per day since February, and China to reduce its imports by circa four million barrels per day,” they added.
“As our colleagues in the HSBC’s Oil and Gas team have detailed, although crude inventories have fallen, they see ‘tank bottom’ as many months away and the partially reopened strait is helping too,” they continued.
The analysts warned, however, that the crude price is “far from all that matters”.
“Refined product supplies have been heavily disrupted by the more-limited availability of crude feedstock and less availability from Middle East refineries, as well as the absence of slack in the global refining system and lower product inventories,” they said.
“Diesel has been in focus recently. While crude oil markets showed some supply relief around the signing of the MoU, the same relief cannot be said for diesel,” they added.
The analysts stated in the note that diesel ‘crack spreads’, which they noted is the difference in price between crude oil and the refined petroleum products produced from it, have remained elevated, “signaling a tight market”.
“For instance, the benchmark ‘3-2-1 crack spread’, a closely watched measure of refining profitability for turning crude into gasoline and diesel, recently surged to its highest level on record, while the spread between U.S. diesel and WTI crude has now topped the levels seen in the acute phase of the Russia-Ukraine war,” they warned.
The analysts noted that part of the recent tightening in diesel markets “actually reflects dynamics linked to the ongoing Russia-Ukraine war”.
They also highlighted in the note that jet fuel prices have started to rise again, that sulphur prices have also risen “and remain around record-high levels”, and that helium markets are also tightening.
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