Allison Nathan:   The US and Iran have reached a deal to end the conflict and reopen the Strait of Hormuz. What could that mean for energy markets and for oil prices in particular? I'm Allison Nathan and this is Goldman Sachs Exchanges.

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Today, I'm joined once again by Daan Struyven, co-head of global commodities research in Goldman Sachs Research. Daan, I said last time we spoke that you'd be back again soon. And here you are.

Daan Struyven:   Accurate prediction, which is challenging in this environment.

Allison Nathan:   Absolutely. So, Daan, maybe you could start by just summarizing the impact this conflict has had on oil markets. And of course, in particular, the significance of this interim deal between the US and Iran.

Daan Struyven:   So, oil prices have sold off pretty significantly from over $120 with Brent now essentially in the low 80s. In the face of the largest oil supply shock ever, we lost roughly 14 percent of global production from the Middle East. Why are prices down so significantly? I think the market is pricing in a relatively optimistic base case for the recovery of Middle Eastern supply in line with our base case. We assume flows through the strait to start to recover. And exports from the region go back to normal levels by the end of July.

And second, we have seen remarkable flexibility in the global oil market outside of the Middle East with a roughly 5 percent reduction in demand. And with pretty strong supply outside of the Middle East.

Allison Nathan:   Right. But just to be clear, obviously, prices were on the decline from the peak which happened in April. But we've seen a big sell-off since these headlines, which has given the market more optimism that we're actually going to see the restart of flows. But talk to us a little bit about what that could look like. Your current forecast predicts flows returning to normal by the end of July. So, what do we have in store for us between now and then?

Daan Struyven:   For exports from the region to fully go back to normal, flows through the strait have to go back to roughly 70% of normal levels because we have seen a lot of redirection via pipelines in particular. I think that the key question really is, is there willingness within Iran to see increases in flows? Yes, there may some logistics, constraints, but I think it all boils down to the question does Iran want to see higher flows? And if yes, do we see a few shippers that go through successfully without strikes? And if so, I think the other shippers are likely to follow.

But we have seen a false start before. So, we'll be laser focused on counting ships, especially from Friday onwards, when the MOU is supposed to be signed in Switzerland.

Allison Nathan:   Right. So, despite the market optimism, there's still a tremendous amount of uncertainty. We can't underscore that enough. But if we begin to see that, how much farther could prices potentially fall?

Daan Struyven:   So, we have some additional downside to prices. We see Brent averaging $75 next year. But I would say that the market has largely priced in the recovery inflows and production from the Middle East that we expect. And so, we see the skew of risk to our forecast and to market pricing as two sided. But as still skewed to the upside on net, because it's not a given that the strait will reopen fully. It's not a given that even if it reopens fully, that it remains open, especially if the thornier nuclear discussions will be held in coming weeks and months.

Allison Nathan:   Right now, Brent was trading around $80 per barrel. That's still much higher than where it was at before the war.

Daan Struyven:   Yeah.

Allison Nathan:   So, you expect prices to remain elevated?

Daan Struyven:   Elevated relative to where we were before the war. But if I look at our 2027 Brent average price forecast of $75, that's in line with our long-term fair value. In the short term though, we do see somewhat higher prices than normal because inventories are quite low. While the deficit has been less large than expected, we're still in a 5 percent deficit. Inventories have been depleting. And that means somewhat higher prices.

And also, we do think that there will be a meaningful disruption risk security premium in oil prices because the risk of supply disruptions is high. And I think markets will continue to price that in somewhat.

Allison Nathan:   Right. So, there still is a lingering impact in this conflict, even if everything goes smoothly from here in the sense that we're expecting oil prices to be, I don't know, roughly $20 per barrel higher than before this conflict ever happened.

Daan Struyven:   Exactly.

Allison Nathan:   So, Daan, just to be perfectly clear, go over your price forecast one more time. $80 per barrel by the end of the year for Brent?

Daan Struyven:   That's right. Which is $74 for WTI. And then moving to 2027 we have Brent at $75 and WTI at $70.

Allison Nathan:   Okay. So, we've been talking mostly about supply here. You very briefly mentioned demand. If prices fall, will we see demand rising again? And how do you factor that into this forecast?

Daan Struyven:   Yeah. So, we think that most of the demand losses, and global oil demand is down by about five percent, we think that most of those losses will unwind. We expect about 90% of the 5 million barrels per day of demand losses to be bouncing back by 2027 because typically when you see these demand losses in response to higher prices where higher prices are driven by negative supply shocks, you typically see a pretty quick recovery. That's what we saw in 2022 after the Russia/Ukraine episode. That's what we saw in 2011 around the Libya war. That said, we pencil in some stickiness in demand losses. We think that oil demands will be about half a million barrels per day lower in 2027 relative to a nowhere counterfactual in part because if you look at EV sales, especially in China, they are surging.

Allison Nathan:   Right. So, we have essentially embarked on trends that we think are going to continue as a result of this war, both on the supply side, as well as on the demand side.

Daan Struyven:   That's right.

Allison Nathan:   Again, we just reviewed your price forecast. Talk to us again about the risk to those forecasts.

Daan Struyven:   Upside on net. So, we laid out a price upside scenario where exports from the Gulf only gradually recover and where the Hormuz Strait never fully reopens. And in such a scenario where exports from the region only gradually recover by 10 million barrels per day over the next year and a half, we see actually oil exceeding $130 per barrel for Brent by year end.

But then over time, as pipeline capacity gets added, the markets mostly manage the shock. But it would mean significantly higher oil prices for longer.

Now, prices could be even lower than our base case. We consider a price down scenario. Price downside scenario with Brent at $60 in 2027. In a scenario where the strait reopens even more quickly. Where some of the demand losses that we discuss are more persistent. And where we see even a stronger supply response from supply outside of the Middle East.

Allison Nathan:   But again, which one is more likely?

Daan Struyven:   So, I think that the main feature of the outlook in terms of risk to oil prices is that price increases in the upside scenario, $50 extra from here, are significantly bigger than the $20 of downside in the downside scenario. I think in terms of probabilities, maybe roughly equal. But the key feature is bigger upside in the upside scenario than downside in the downside scenario.

Allison Nathan:   So, very interesting. Obviously, we have a wide distribution of outcomes here.

Daan Struyven:   Unusually wide.

Allison Nathan:   But let's zoom out for a moment, Daan, as we conclude our conversation.

Essentially, this episode has revealed tremendous power on the part of some countries like Iran to essentially disrupt this very vital shipping artery. We've also seen tremendous leverage from countries, some countries around the world, in adapting to that disruption. So, when you take a step back and think about the lessons you've learned from this episode, what is most striking to you?

Daan Struyven:   Yeah. I think you outlined the two key lessons. One, commodity supply is at an even greater risk of disruptions in a highly geopolitically fragmented world.

But then on the other side, China in particular has revealed an incredible ability to adjust to the system with significant switching to other energy sources, such as coal, such as power with a surge in EV volumes. And the fact that Chinese import volumes of crude are down 4 to 5 million barrels per day year over year is likely the single most important reason why oil prices are not in triple digit territory at the moment.

Allison Nathan:   So, just tremendous ability to adapt to this very big shock.

Daan Struyven:   Yes. So, the future may be a future with more frequent, large supply disruptions in a highly fragmented world where the US and China are competing for geopolitical power, for AI dominance, for commodity dominance. But it may also be a world where we'll be surprised by the ability to deal with those supply disruptions.

Allison Nathan:   All right. That's a pretty positive note to end on right now. We'll see what happens with this war and these flows. But thanks again for joining us, Daan.

Daan Struyven:   Thanks a lot, Allison.

Allison Nathan:   This episode of Goldman Sachs Exchanges was recorded on Tuesday, June 16th, 2026. I'm Allison Nathan. Thanks for listening.