… Energy Markets Told Not to Price in Stability Yet

By Jorge Leon, Head of Geopolitical Analysis, Rystad Energy

Global energy markets should treat the new US–Iran Memorandum of Understanding (MOU) as a tactical de-escalation rather than a durable settlement, according to analysis from Rystad Energy.

Jorge León, Head of Geopolitical Analysis at Rystad Energy, said the agreement reduces the immediate risk of military confrontation but leaves core geopolitical issues unresolved, particularly Iran’s nuclear programme and the long-term security of the Strait of Hormuz.

He warned that while the MOU reflects mutual short-term incentives — including Washington’s sensitivity to fuel prices and Tehran’s need for sanctions relief — it does not eliminate underlying risks to global oil flows.

“For energy markets, this is a transition from acute disruption risk to managed geopolitical risk,” León said. “The risk premium does not disappear with a signature; it only changes shape.”

Market impact: lower shock risk, persistent premium

According to Rystad Energy, the likelihood of a full-scale military escalation has declined, reducing tail-risk for an immediate supply shock. However, the consultancy cautioned that oil markets should not assume a return to pre-crisis stability.

Instead, the outlook has shifted toward a more volatile “negotiation phase,” where sentiment-driven pricing and periodic geopolitical tensions continue to influence crude benchmarks.

Even under a constructive scenario, partial normalization of traffic through the Strait of Hormuz is expected to be gradual, with insurance costs, shipping confidence, and logistics adjustments slowing recovery.

Base case: narrow deal, managed de-escalation

Rystad’s updated base case assigns a 55% probability to a narrow agreement emerging from the 60-day negotiating window, up from 40% previously.

In this scenario, sanctions would ease gradually and oil flows through the Strait could recover toward around 10 million barrels per day by January. However, a structural risk premium of $5–10 per barrel would remain due to unresolved geopolitical tensions.

The firm said this outcome balances political incentives: the US could claim progress on stabilising energy markets, while Iran retains leverage over a critical global shipping route.

Alternative scenarios: stalemate or breakdown

A stalemate scenario — now assigned a 25% probability — would see negotiations stall without a full agreement, while the ceasefire framework holds. In this case, flows would recover only partially, potentially stabilising around 5 million barrels per day, with a persistent ~$10 per barrel risk premium.

A full resolution scenario has been downgraded to 10%, reflecting the difficulty of achieving a comprehensive nuclear and maritime security agreement within the 60-day timeframe. While this outcome would largely remove the geopolitical risk premium and significantly restore oil flows, analysts see it as politically unlikely.

The downside scenario — also at 10% probability — involves a breakdown in talks and a return to military escalation. This would constrain Strait flows and could reintroduce a $15–20 per barrel risk premium, though analysts now view this as less likely than in previous assessments.

Structural risk remains the key market driver

Across all outcomes, Rystad emphasised that the defining variable is Iran’s retained leverage over the Strait of Hormuz after the negotiation period ends.

Even if flows improve, markets are expected to continue pricing in a structural geopolitical premium unless a durable security framework is achieved.

The report also noted that any recovery in oil transit will likely be gradual, as shipping confidence, insurance pricing, and logistical bottlenecks take time to normalize.

In parallel, replenishment of global crude inventories and strategic reserves could add upward pressure on prices during the recovery phase.

Outlook: from crisis pricing to negotiation pricing

Rystad concluded that the MOU reduces the probability of immediate supply shocks but does not eliminate geopolitical risk from global oil markets.

“The market is moving from crisis pricing to negotiation pricing,” the firm said, “less panic, but still elevated uncertainty compared with pre-conflict conditions.”