Iran Crisis ( Brent Crude)

When the Iran crisis first pushed oil sharply higher, our view was not that the market was wrong to price a shock. It was that the market was likely to overestimate the half-life of the crisis premium.

That distinction became increasingly important as Dated Brent moved above $140/bbl. The physical market was doing exactly what physical markets do in moments of severe disruption: paying almost any price for certainty of supply today. Yet December Brent remained close to $80. The curve was not dismissing the crisis. It was questioning how long the crisis could continue to dictate the price of a barrel. For us, that was the more important signal.

A geopolitical event can change the price of oil almost instantly. Changing the equilibrium price of oil is much harder. For that, the market needs more than fear and disrupted logistics. It needs a sustained loss of physical supply, an inability of other producers to respond and a demand environment capable of absorbing higher energy prices without destroying consumption. 

We were never convinced that those conditions would persist together for long enough to justify a permanent move into a materially higher oil regime. This is also why we were cautious about extrapolating the first move. At $140 oil, the price itself begins to work against the bullish thesis. Marginal demand weakens, substitution becomes more attractive, producers gain stronger incentives to respond and political pressure to restore supply intensifies. In other words, the more extreme the price move becomes, the more powerful the forces trying to shorten its duration.

The subsequent repricing back towards $70 therefore matters less to us as a simple directional call and more as confirmation of the original framework. The Iran shock was real. The volatility was justified. The scarcity premium was rational. What proved temporary was the market’s willingness to capitalise that premium indefinitely. That was our view from the outset: the severity of the shock was never the key debate. The duration was. And in oil markets, duration is often where the real mispricing sits.