Heightened tensions following US and Israeli strikes on Iran have elevated concerns regarding the Strait of Hormuz, transforming it from a tail-risk into a key concern for oil markets, according to Morgans deputy head of research Adrian Prendergast. The analyst suggests that previous OPEC+ supply responses were largely symbolic due to the Hormuz choke point remaining a critical vulnerability that spare capacity in Saudi Arabia and the UAE cannot bypass. Before the conflict, forecasts indicated a bearish outlook, with Brent crude projected to average $US58 in 2026, driven by increasing global inventories and non-OPEC supply growth.
Prendergast noted that the situation has created a binary outcome for oil prices. In a scenario where the Strait of Hormuz reopens promptly, Brent crude could stabilise between $US75 and $US80 per barrel. However, if disruptions persist for weeks, prices could realistically climb to $US90 or even $US100. Sustained damage to Iranian infrastructure could potentially push prices into triple-digit territory. The situation also poses a risk to LNG markets, especially if Qatar halts shipments, which could create shortages in Asia and Europe.
“For our ASX energy coverage universe, this is unambiguously positive in the short term, but further upside depends entirely on conflict duration and whether Hormuz traffic resumes,” said Prendergast. He cautioned against aggressively pursuing the rally at current levels, stressing the binary nature of the potential outcomes. The pre-conflict consensus of structural oversupply in the oil market remains a factor, although it is temporarily overshadowed by geopolitical events.
Woodside, an Australian petroleum exploration and production company, was identified as Morgans’ top pick, with short-term earnings and dividends expected to benefit from the surge in oil prices. Woodside is engaged in the exploration, development, production, and marketing of oil and gas. Investors are advised to exercise caution, considering the high degree of uncertainty surrounding the conflict’s duration and its ultimate impact on global energy markets.
