Rabobank’s Senior Macro Strategist Bas van Geffen highlights that Oil prices have reached their highest level since April as markets focus on potential renewed escalation in the US-Iran conflict after US midterm elections. Rabobank strategists expect possible US, Israeli and coalition strikes on Iran and the Houthis, with associated attacks on Gulf countries, supporting higher refined product price forecasts and persistent energy inflation.

War scenarios underpin higher energy prices

“But all eyes are increasingly turning to the US midterm elections next week, and the risk of renewed escalation of the US-Iran war after the polls have closed. Oil prices rose to the highest level since April as evidence builds of possible new US strikes on Iran.”

“As our global and energy strategists write, we assume the US, Israel, and a broader Arab and European coalition are likely to attack Iran and the Houthis and to defend Saudi Arabia. If such an escalation happens, Iran and the Houthis would probably attack the Gulf countries and potentially Egypt. This fighting could last until the end of 2027Q1 at varying intensity.”

“That will contribute to elevated oil prices. Our main concerns remain diesel and marine fuel oils. Between the wars in Iran and Ukraine, nearly 12% of the world’s refining capacity for making gasoline, diesel and other fuels is offline.”

“Inventory declines will be even steeper if we see double escalation in Russia-Ukraine and the Middle East, and it looks like the only path forward to lower prices and rising inventories is double de-escalation in both Russia-Ukraine and the U.S.-Iran wars. This is the basis for revising our refined products forecasts higher.”

“So, energy inflation is bound to stay high for some time. President Lagarde admitted that inflation will stay well above target in the coming quarters.”