-- The Middle East conflict is tightening global energy markets and raising the risk of a "cruel summer" for consumers, as constrained supply collides with peak seasonal demand and policymakers struggle to contain the fallout, RBC Capital Markets strategists said in a note on Sunday.
RBC analysts said the conflict, now in its third month, has displaced up to 1 billion barrels of crude and refined products from global markets, marking what some analysts describe as the largest supply shock in modern history.
However, despite intermittent ceasefire signals and market optimism around a reopening of the Strait of Hormuz, negotiations between Iran and the US remain deadlocked.
Iran has refused to abandon uranium enrichment, while the US has yet to secure meaningful concessions, with recent talks failing to materialize.
RBC said for weeks the Trump administration has leaned on messaging that the conflict could end soon, helping cap near-term oil prices. However, market participants said that the narrative may be masking the severity of the supply crunch and delaying necessary demand destruction.
"The price response has been unusually muted given the scale of the disruption," RBC analysts said, adding that subdued prices risk fostering complacency among policymakers and consumers alike.
The analysts said even in a best-case scenario, the return of Middle Eastern supply is expected to be slow. Damage to oil fields, export terminals, and logistics networks could take 3 to 6 months to repair, RBC said, with longer timelines likely if subsurface infrastructure has been severely damaged.
Uncertainty over the true extent of the damage remains high, with satellite imagery offering only partial insights and on-the-ground assessments still pending.
Meanwhile, global inventories are drawing down as supply remains constrained. RBC analysts expect crude and refined product prices to rise further into the summer, driven by steady demand and tightening fundamentals.
Refinery margins are also set to strengthen, as limited product availability pushes up fuel prices. However, the dynamic carries risks, as higher costs could eventually trigger demand destruction and weigh on the global economy.
Though Asia has been the epicenter of the crisis, the effects of the Iranian conflict are being felt in Europe, where energy import costs have surged.
The European Union has spent an additional 24 billion euros ($28.1 billion) on fossil fuel imports since February, with aviation among the hardest-hit sectors.
Major carriers, including Lufthansa, KLM, and Scandinavian Airlines, have collectively canceled tens of thousands of flights due to high fuel costs and route constraints. Some airlines said that fuel supplies are only secured through mid-May, raising the prospect of further disruptions.
The conflict is also accelerating shifts in consumer behavior. Electric vehicle adoption is rising rapidly, with battery-electric registrations in Europe jumping in early 2026, while second-hand EV sales have surged in key markets.
On the demand side, RBC said Asian governments are taking aggressive steps to curb energy consumption.
South Korea has extended fuel price controls, while India has cut industrial LNG supplies by 20%. Bangladesh has introduced fuel rationing, and countries including the Philippines, Vietnam, and Sri Lanka have reinstated remote work policies and driving restrictions.
China, the world's largest energy importer, appears better positioned to absorb the shock, having built up strategic reserves. However, its reliance on Middle Eastern supply, which accounts for more than half of its imports, leaves it exposed to prolonged disruption.
RBC analysts said that the combination of steady demand, constrained supply, and limited price response could amplify the eventual market correction.
The analysts said any additional disruptions, including refinery outages, export restrictions, or further attacks on energy infrastructure, could exacerbate shortages just as summer demand peaks.