Oil prices face growing upside risk as prolonged Gulf supply disruptions, shrinking market buffers and uncertainty over key export routes outweigh expectations for the Strait of Hormuz to reopen, Rystad Energy said in a note on Thursday.
The firm said the market has shifted its attention from whether the Strait reopens to how quickly and sustainably exports recover, while Saudi Arabia's Red Sea outlet remains critical as Persian Gulf shipments stay constrained.
Inventory drawdowns, spare production capacity and alternative export routes have helped offset lower oil flows through the Strait of Hormuz since March, said Janiv Shah, vice president, commodity markets.
"The bigger question now is how long those buffers can continue to offset supply losses," Shah added.
Shah said the market now places greater emphasis on the resilience of physical oil supplies than on geopolitical developments alone.
"If disruptions continue, oil prices are more likely to rise than they were earlier in the conflict," Shah said.
He added that the market has fewer defenses because much of the world's spare production capacity has already been used while strategic and commercial oil inventories have declined.
Shah said three factors will shape prices, "... whether crude flows into Asia can be maintained, whether refiners can adapt to a changing mix of crude grades and how geopolitical developments unfold."
Rystad assigned a 5% probability to a full-resolution scenario that assumes rapid de-escalation, sanctions relief, unrestricted shipping and binding nuclear limits.
The firm said recovering refinery demand and strategic petroleum reserve purchases would support prices after an initial decline.
Rystad said governments have little reason to replenish strategic petroleum reserves while the initial wave of exports clears the market.
The firm added that renewed refinery demand and later SPR purchases would help support oil prices as supply conditions gradually improve.
Rystad assigned a 40% probability to a narrow agreement that restores trade but leaves Iran's nuclear dispute and maritime risks unresolved.
The firm said Gulf exports and shipping confidence would recover gradually, keeping a geopolitical risk premium in place.
Refinery margins would stay elevated as Asia competes for Persian Gulf sour crude and governments begin refilling strategic petroleum reserves after markets stabilize, with stronger refinery demand helping support oil prices.
Rystad assigned a 35% probability to a prolonged stalemate in which Saudi Arabia's Yanbu terminal remains a key export outlet, shipping about 4 million barrels per day, including roughly 2.5 million b/d through Bab el-Mandeb.
Under that scenario, the supply constraints would lift crude prices, while strategic petroleum reserve releases would only limit price spikes.
Asian refiners could reduce processing because of limited sour crude despite healthy refining margins.
The firm added that Europe and US refiners would compete more aggressively for Atlantic Basin and heavy sour crude, while delayed strategic petroleum reserve refilling would leave prices more sensitive to renewed disruptions.
Rystad assigned a 20% probability to renewed fighting that closes both the Strait of Hormuz and Bab el-Mandeb.
The firm said losing both export routes would overwhelm market buffers and sharply increase geopolitical risk premiums.
The firm said Saudi Arabia could reroute some Yanbu exports north through the Suez Canal and the Suez-Mediterranean pipeline.
However, vessel restrictions, pipeline capacity, freight costs and logistical constraints would prevent a full replacement of southern shipments.
Refinery margins and product cracks would surge under that scenario, but refiners would still struggle to secure enough Middle Eastern sour crude.
Analysts said tighter diesel and jet fuel markets would persist despite stronger incentives to process crude.
Governments would likely coordinate strategic petroleum reserve releases, but lower inventories, crude quality differences and refinery compatibility would reduce their effectiveness in easing supply disruptions, the note added.
Rystad said persistently high crude and refined product prices would eventually curb demand across road fuels, aviation, petrochemicals and price-sensitive emerging markets.
The firm expects weaker demand, together with non-Gulf supply growth and gradual trade adjustments, to ease crude markets through 2027.