Oil’s price boom foreshadows a post-war bust

Despite ceasefire, a US ground operation may further Hormuz blockade

3D printed oil barrels, rising stock graph and words "Oil Stocks" are seen in this illustration taken Mar 23, 2026. REUTERS/Dado Ruvic/File Photo

Right now, oil investors’ main obsession is excessively high prices. Fair enough: the effective closure of the Strait of Hormuz since early March has sent Brent crude as high as $126 a barrel. Even so, the United Arab Emirates’ departure from the Organization of the Petroleum Exporting Countries this week may still mean that the market’s most striking feature in the next few years is not too little supply, but too much.

Prices are now way above their $90 a barrel mid-April level because the world’s 8 billion-plus barrels of crude and product reserves are rapidly diminishing and unevenly distributed. Moreover, despite a ceasefire between Iran and the United States, it’s far from clear that the status quo will last. With both sides blockading Hormuz to pressure each other, US President Donald Trump is considering next steps that include a ground operation, Axios reported on Thursday citing unnamed sources familiar with the matter. But further hostilities could mean the strait is closed even longer.

Still, imagine the strait is forcefully opened or the two sides eventually reach some compromise that allows the majority of the 120-plus pre-war daily ships through Hormuz to resume. As a result of the UAE’s exit, the oil market would look rather different. OPEC+, a bigger alliance than the 11 remaining members of OPEC that includes Russia, would still control 42 percent of the 100 million barrel-a-day global oil market, ⁠rather than 47 percent when the UAE was on board. But amid the departure of a state that holds a tangible chunk of its spare capacity, the discipline that has allowed OPEC+ to jointly cut nearly 5 million barrels of daily production since 2022 could break down.

UAE President Mohammed bin Zayed al-Nahyan has long aimed at increasing the state’s daily production from 3.5 million barrels to 5 million barrels. In 2022, a year before hosting the COP28 climate conference, the country's national producer ADNOC bought that target forward to 2027. The logic is simple: if climate change-driven peak oil demand arrives sooner rather than later, global oil consumption will fall and Gulf states’ black gold reserves will become less valuable. The current Iran war, which highlights the risk of relying on a volatile area for such a fundamental energy source, will incentivise big Gulf fossil fuel buyers like Japan, South Korea and India to transition quicker into renewable energy and nuclear, and even back into coal.

A UAE that can get pumping raises a key question – what de facto OPEC leader Saudi Arabia does next. With up to 12 million barrels of daily oil production and a less diversified economy, Crown Prince Mohammed bin Salman has an even greater incentive to pump spare capacity that the International Energy Agency puts at 1.7 million barrels a day. The alternative is that MbZ nabs his market share.

When Saudi ⁠opens the spigots, prices tend to lurch. Saudi Arabia’s clashes with US shale producers last decade and its brief price war with Russia in 2020 both triggered sharp falls in crude. In the latter case, prices briefly collapsed below $20 a barrel, admittedly driven by a pandemic-related global demand collapse.

Oil prices fell sharply during previous producer price wars

A price war would hurt Saudi – the price at which its national budget balances in 2026 is near $90 a barrel, the International Monetary Fund said last year, while the more diversified UAE is $45 a barrel. But it costs both countries less than $10 a barrel to extract oil from underground. In 2019, Riyadh’s state oil company Saudi Aramco’s IPO prospectus said its projects could earn a 10 percent return even if prices fell appreciably below $20 a barrel.

Exactly where post-war prices might settle is hard ⁠to predict. The Iranian weaponisation of Hormuz means that oil investors expect a $10-a-barrel geopolitical risk premium, a potential months-long delay whenever Gulf producers restart production, and elevated demand when oil-consuming states replenish their depleted stocks. Still, the US Energy Information Administration reckons global liquid fuels output will exceed consumption in 2027 by over 3 million barrels a day.

The 2026 Hormuz shock will tempt global oil consumers to find alternatives to relying on the Gulf. But it’s still possible that a subsequent price war leaves future crude values ⁠a fraction of where they are now – and creates a slower energy transition than might currently look likely.

Context News

US President Donald Trump was scheduled to receive a briefing on April 30 on plans for a series of fresh military strikes to compel Iran to negotiate an end to the conflict, Reuters reported on April 30 citing a US official.

Such options have long been part of US planning but reports of the proposed briefing, ⁠first issued by news site Axios late on April 29, initially spurred big gains in oil prices, with the benchmark Brent crude contract hitting more than $126 a barrel at one point on April 30. It had fallen to $111 as of 0800 GMT on May 1.

Iran said on April 30 it would respond with "long and painful strikes" on US positions if Washington renewed attacks and restated its claim to the Strait of Hormuz, complicating US plans for a coalition to reopen the waterway.