Wall Street financial giant Citi has released a research report stating that although inventory consumption, the release of strategic petroleum reserves, reduced imports by Asian countries due to high oil prices, relatively weaker demand, and signs of a phased de-escalation in hostilities have to some extent cushioned the pressure from energy cost drivers, if long-term peace negotiations between the United States and Iran remain intractable, leading to a prolonged blockade and controlled access in the Strait of Hormuz, the international benchmark for oil prices—Brent crude—may rise further from its recent retreat around $100 per barrel, and could even hit new highs.
Strategists at Citi Group (C) indicate that their baseline forecast scenario still expects the disruption in the Strait of Hormuz to significantly ease by the end of May, while simultaneously acknowledging that the difficulty in reaching a US-Iran agreement has increased the risk of a sharp near-term upside in oil prices. Citi maintains its 0-3 month Brent oil price forecast at $120 per barrel, while projecting an average price of $110 per barrel in the second quarter, falling to $95 per barrel in the third quarter, and $80 per barrel in the fourth quarter.
As the crisis in the Strait of Hormuz cannot be quickly resolved, Wall Street traders are shifting from the “TACO” trading strategy (betting on positive progress in US-Iran negotiations or Trump always backing down at the last minute) to the “NACHO” trading strategy—which assumes that a prolonged blockade of the strait is inevitable. Although Brent crude prices have retreated from their late April high of $126 per barrel, they remain above $100 per barrel, nearly 50% higher than before the escalation of the conflict.
Citi, citing vessel tracking data, states that China’s oil imports may decrease by approximately 2.4 million barrels per day in April and May, falling from an average of about 11.6 million barrels per day in 2025 to about 9.2 million barrels per day, which has reduced supply pressure on the global oil market. However, Citi strategists point out that the crude oil futures trading market underestimates the potential duration and tail risks of a blockade in the Strait of Hormuz. Even if the blockade is lifted in an orderly manner, global oil supply will remain very limited in the short to medium term, still far from returning to transportation levels before the end of February, when the conflict had not yet escalated. A global rush to buy oil from the Middle East or stockpile oil out of inventory panic could significantly drive up prices.
Overall oil production in the Middle East has been drastically reduced due to the war, with the logic being a triple overlap of “production cuts + obstruction of export vessel capacity + damage to infrastructure from missile strikes.” Even if the strait reopens, the flow of crude oil, infrastructure repairs, fleet redeployment, refinery ramp-ups, and inventory replenishment will all take months. International Energy Agency Director Fatih Birol has stated that it could take up to two years for oil and gas production capacity disrupted by the war to return to pre-war levels. In other words, a ceasefire can only compress the panic premium at the forefront, but cannot quickly erase the supply shortfall and inventory vacuum at the back end.
