Global oil markets are severely under-pricing supply duration and tail risks, with Brent crude prices poised to surge to $120 per barrel in the near term and potentially touch $150 per barrel under a bull case scenario, according to a research report by Citi. The ongoing geopolitical standoff over the Strait of Hormuz and emerging weather disruptions present substantial upside risks to global inflation over the next year.

"We remain bullish very near-term and see prices rising to $120/bbl in the base case (50 per cent indicative), with the risks surrounding our price forecasts skewed to the upside. Our bull case scenario (multiple paths to get there) is for Brent prices to reach $150/bbl," the report stated. The primary driver behind this projected price spike remains the ongoing war and the closure of the Strait of Hormuz. The report mentioned that neither the Iranian regime nor the United States faces sufficient economic or political distress to force an immediate diplomatic breakthrough.

The report outlined that a formal memorandum of understanding or de-escalation is unlikely to materialise before July. "The timing and pace of the reopening of the Strait of Hormuz (SoH) depends largely on the Iranian regime and is therefore difficult to call. It appears increasingly likely, in our view, that the Iranian regime will disrupt SoH flows for some time, but will eventually deal, as it balances the benefits of keeping the SoH disrupted relative to the benefits of re-opening the SoH," the report stated.

The report also highlighted that the benefits of keeping the strategic waterway closed allows Iran to, "maximise deterrence against future attacks, maximise the present value of future oil revenues due to convex price-to-inventory dynamics, and maximise retribution for killed leadership figures.” Conversely, the eventual motivation to strike a deal hinges on improving internal economic performance and halting international military intervention aimed at regime change.

“Although we remain bullish near-term, our latest work suggests that the status quo would need to continue for another 6-9 months before we see inventories outside of China draw to levels last reportedly seen during the 2nd oil shock," the report stated. It further added that if recent oil output losses sustain for another six months, expenditures on oil could rise by an additional $5 trillion to $6 trillion, pushing global oil spending to 7-8 per cent of global GDP, matching 1979 oil shock levels.

The inflationary pressures extend beyond the energy sector. Supply chain disruptions tied to the Strait of Hormuz, combined with adverse weather patterns, are expected to impact global food security. "Meanwhile, its not just energy that can contribute to inflationary pressure over the next 6-12 months. Agriculture price risks are heavily skewed to the upside over the next 6-12 months, as they face major supply risks resulting from a potential prolonged closure of the Strait of Hormuz, and from likely poor weather related to El Nino," the report states.

Published on May 22, 2026