When High Prices Fix Themselves

Answer: The US-Iran conflict began February 28, 2026, so it’s a bit over two months since shipping through the Strait of Hormuz was effectively shut down. As a result, we’re experiencing the largest oil supply disruption in history with oil prices hovering around or above $100/barrel as this is being written, supporting interest in your question about where oil prices go from here.

Our firm expects oil to settle back in the $70/barrel range by year-end, assuming shipping traffic recovers to pre-war levels by mid-July, while acknowledging that the timing remains uncertain and is based on diplomatic discussions. Higher energy prices do pose an economic headwind for inflation and consumer cash flow, but we still expect oil prices to subside by year-end for four reasons.

Motivation

The Iranian conflict is unpopular for everyone involved. In the US, midterms are roughly six months away, and the approval rating for the conflict is only around 30%, making political considerations a factor. The longer gas remains over $4/gallon, the more pressure there is on Republicans which could suggest a Democratic sweep of Congress. Iran is also strongly motivated to reach a deal. Their GDP is down approximately 10% because oil exports are effectively at a standstill. Both sides are motivated to strike a deal; timing is the key issue.

Lower Quicker

Once there is a settlement, shipping traffic should normalize relatively quickly, letting countries in the Persian Gulf area resume oil production to pre-war levels. The timing is uncertain with the best-case scenario for normalcy by mid-July. Summer is peak season for oil demand, and historically, ceasefires either collapse or convert into a deal eight to 12 weeks after being negotiated, putting us right in that time frame. Markets are extremely sensitive to any signs of progress, as witnessed by the price of WTI dropping from $110 to $80 per barrel when reports of a ceasefire were in the headlines during April.

Weakening Demand

The cure for high prices is often high prices. It may sound counterintuitive, but demand destruction quickly takes place leading to increased supply. As supply increases because of this lower demand, markets eventually adjust and rebalance by lowering prices. Basic common-sense stuff that plays out in situations like this. In developed countries like the US, consumers change their behavior and adjust plans accordingly. Also, in response to higher prices, the Eurozone has seen slowed growth.

An example of this phenomenon took place when world economies reopened after Covid in 2022. Oil prices quickly rose when demand increased, so consumers responded by conserving fuel and lowering consumption. As demand slowed, oil prices self-corrected and fell. That doesn’t mean prices fall immediately. The adjustment takes time, and prices can remain volatile along the way—but the longterm pattern is remarkably consistent.

Another consideration is that the International Energy Agency (IEA), a global organization made up of 32 members, committed to releasing 400 million barrels from emergency stockpiles over the past two months. This offsets roughly one-third of the lost supply while the Strait of Hormuz is blocked. The IEA projects global demand to decline in 2026, the first time since Covid. Fun fact: the IEA was founded in 1974 in response to oil price shocks during the 1970s to help promote coordinated energy security. Lastly, in other countries where the impact may be more serious, fuel rationing and remote-work mandates for government employees are being implemented.

New Supply

Oil field projects in Brazil, Canada, Norway, Uganda, and the US are scheduled to be completed in 2026. These will contribute to offsetting the importance of the Persian Gulf supply. As these oilfields come onstream in the next few months, the incremental supply should lessen the impact of the Mid-East disruption. Also, the United Arab Emirates (UAE) decided to end its OPEC membership once the Strait reopens and is expected to increase oil supplies. Over time, these factors should help bring oil prices down, although the markets are laser-focused on near-term tight supplies.

The current disruption isn’t expected to be a long-lasting supply shock. Progress towards a diplomatic resolution for the Iranian conflict should help bring oil prices lower by year-end. While oil prices are likely to remain elevated in the near term, for the reasons outlined, it’s expected that the long-term impact will be absorbed with limited damage. Stay focused and plan accordingly.