Is the Era of Cheap Oil Over

American petrol prices have surged 36% in the space of a single month, breaching the politically sensitive threshold of USD 4 per gallon and dealing a direct blow to Donald Trump’s central campaign pledge to reduce energy costs from “day one” of his presidency. With US midterm elections drawing closer, the pressure on the White House is mounting, and the president’s proposed remedy, withdrawing US forces from Iran, has so far offered only a brief and unconvincing reprieve for markets.

Brent crude slipped to near USD 100 per barrel following Trump’s Oval Office remarks on Tuesday, retreating from an intraday high of USD 119. Yet seasoned market participants will recognise the move for what it is: a sentiment-driven correction rather than a structural shift. The underlying conditions that have propelled oil prices to their current elevated levels remain firmly in place, and the path back to the USD 73 per barrel seen before the US and Israeli strikes began is anything but straightforward.

The most immediate constraint is one that lies largely beyond the president’s reach. Iran’s blockade of the Strait of Hormuz, through which approximately one fifth of the world’s oil and gas supplies transit, is currently withholding an estimated 13 million barrels of oil per day from global markets, representing the largest energy supply shock in recorded history. Tehran has shown little appetite for a swift resolution. Ebrahim Azizi, head of the Iranian parliament’s national security committee, stated on Wednesday that the Strait would reopen only to “friendly” nations and vessels willing to pay a GBP 1.5 million passage fee, a surcharge that analysts estimate adds USD 1 to the cost of every barrel of oil traded through the route.

Compounding the blockade are severe and long-lasting physical constraints on supply. Gulf state producers require months to repair damaged energy infrastructure and bring shuttered wells back online. Qatar’s Ras Laffan facility, which accounts for roughly one fifth of global liquefied natural gas production, has sustained missile damage that officials say will take between three and five years to fully remediate. The ripple effects on global LNG markets over that horizon should not be underestimated.

Shipping disruption adds a further layer of structural cost. Vessels are being rerouted away from the Gulf, a process that takes months to recalibrate across global trade lanes. More significantly, the war has exposed the systemic vulnerability of high dependence on Gulf energy supply, prompting countries to accelerate the build-out of strategic reserves. That demand-side response will sustain upward pressure on prices even as physical supply begins to recover.

Insurance markets present their own persistent headwind. War risk premiums have surged since the onset of hostilities, and there is no credible basis for expecting a rapid normalisation. June Goh, a commodities analyst at Sparta Commodities, cautions that lingering risk premiums and shipping restrictions will continue to deter vessels from operating in the Middle East even if the Strait of Hormuz reopens unconditionally. Convincing underwriters to revise their war risk assessments will require sustained evidence of stability, not political declarations.

The market outlook from leading commodity strategists reinforces a sober assessment. Ole Hansen, head of commodity strategy at Saxo Bank, has stated plainly that he no longer anchors his analysis to Trump’s public commentary, noting that Iran holds the operative leverage in this situation. He anticipates that global supply will remain constrained for three to six months, with Brent crude unlikely to retrace below USD 90 during that period and more probably consolidating around USD 100. Over the medium term, Hansen suggests the structural floor for oil has shifted decisively upward: if USD 70 represented the prior equilibrium, the new normal is likely to settle in the USD 80 to USD 90 range.

SEB, the Norwegian corporate bank, holds a similarly constructive view on prices, projecting an average of USD 100 per barrel for the remainder of the year, even under the assumption that Gulf flows return to normalised levels by mid-May. The bank’s chief commodities analyst, Bjarne Schieldrop, raises an additional geopolitical dimension worth considering: as an oil exporter, Iran stands to benefit materially from sustained price elevation. Deliberately constraining Strait of Hormuz access ahead of the US midterms would serve both Tehran’s fiscal interests and its strategic interest in undermining Trump’s domestic standing.

The contagion has spread well beyond crude. European natural gas prices have risen more than 60% since the end of February. Emergency stockpiles across the continent have been drawn down to manage near-term supply disruptions, and governments will now face the burden of rebuilding those buffers precisely as Asia enters its peak summer gas consumption period. The resulting competition for supply across two major demand centres simultaneously will further tighten an already stressed global market.

Hansen summarises the structural imbalance with characteristic precision: a resolution today would not erase the supply deficit that has accumulated over the past month. The gap between production and demand will take time to close, irrespective of the diplomatic timeline. Expecting Brent crude to return to pre-conflict levels before the US midterm elections, he concludes, is wishful thinking. Only a material and sustained reduction in global demand or a significant increase in non-Gulf supply could achieve that outcome, and neither scenario appears credible in the near term. For investors positioned in energy, commodities, or inflation-sensitive assets, the message from the market is unambiguous: the era of cheap oil is over.