The analyst said the near-term direction for oil prices now depends on how the conflict evolves. A de-escalation could reverse the recent 10% rise in crude prices, but any prolonged conflict or attacks on energy infrastructure could push prices significantly higher.
“In the worst-case scenario, where this conflict persists in a current form or even expands to target oil infrastructure in the region, then we could see oil prices head back up above $100 a barrel and retest those levels we saw in March and April.”
Brent crude has rebounded to around $85 a barrel after geopolitical tensions flared again in the Middle East, reversing expectations that oil prices would ease following hopes of a ceasefire and a reopening of the key shipping route.
Kavonic said the market had briefly anticipated a supply surplus as oil flows through the Strait
were expected to recover, but the renewed blockade and attacks on shipping have altered that view. According to him, volumes moving through the Strait have fallen to around 15% of pre-war levels, preventing additional supplies from reaching global markets.
Kavonic noted that expectations of a temporary supply glut have faded as lower oil flows offset weaker demand from China and strategic petroleum reserve releases. Instead, he believes the market remains structurally undersupplied and continues to rely on inventories to meet demand.
He added that oil prices are unlikely to soften meaningfully unless shipping volumes through the Strait recover to around 30-50% of pre-war levels, allowing more crude to reach international markets.
Looking further ahead, Kavonic expects the conflict to permanently reshape energy security strategies in the Gulf. He said major oil-producing nations are likely to accelerate investments in alternative export infrastructure to reduce their dependence on the Strait of Hormuz.
While countries such as the UAE and Saudi Arabia have already announced plans to expand pipeline capacity that bypasses the Strait, Kavonic said building the required infrastructure will take several years. Export routes for countries such as Iraq and Kuwait will require broader regional cooperation, meaning the Strait is expected to remain a critical global energy chokepoint for the foreseeable future.
For the entire discussion, watch the accompanying video
