On Monday, European Union foreign ministers rejected US President Donald Trump’s demands to help protect the Strait of Hormuz with troops, while Europe is determined to continue strengthening security at its military bases in the region. Earlier, Kaja Kallas, Vice President of the European Commission, proposed extending the mandate of Operation Aspides to strengthen security in the Strait of Hormuz amid growing conflicts and energy disruptions. Aspides is an active EU military mission established in 2024 to protect merchant shipping and restore freedom of navigation in the Red Sea, Gulf of Aden, and surrounding waters.
However, European leaders are eager to avoid being drawn into war,”This is not our war. We haven’t started yet,” said German Defense Minister Boris Pistorius.What….Trump expects a handful or two European frigates to do in the Strait of Hormuz that the mighty US Navy can’t?” he added.” And now energy and commodity analysts at Standard Chartered have predicted that oil prices will remain higher for longer than previously expected, due to the absence of clear ‘roads’ in this ongoing conflict.
StanChart raised its forecast for Brent prices for 2026 to $85.50/bbl from $70.00/bbl and for 2027 to $77.50/bbl from $67.00/bbl. However, StanChart predicted that oil prices will gradually decline as the months and locations continue, with Brent crude averaging $78.00/bbl in Q1 2026; $98.00/bbl in Q2 2026, $85.00/bbl in Q3 2026 and $80.50/bbl in Q4 2026.
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StanChart estimates that the war in the Middle East has reduced global oil supply by 7.4-8.2 million barrels per day (mb/d), with Iraqi production down 2.9 mb/d, 2.0-2.5 mb/d in Saudi Arabia, 0.5-0.8 mb/d in the UAE, 0.5 mb/d in Qatar and 0.5 mb/d. In addition, commodity experts estimate that Iranian production is 1 mb/d lower than pre-conflict volume. However, StanChart notes that all shipments that could be diverted from the Strait of Hormuz have already been done, meaning that no meaningful increase in global oil supply is likely to be seen unless the blockade eases. In fact, Saudi Arabia is using temporary additional capacity on the East-West pipeline to increase transport rates to the Red Sea to 7 mb/d.
StanChart now sees the price of oil down from the low to mid 70s due to the IEA’s historic release of oil from strategic reserves. Last week, the IEA announced the record release of 400 million barrels of oil from the strategic reserves of 32 member countries, the largest in its history.
The release far exceeds the release of 182 million barrels announced back in 2022 after Russia invaded Ukraine. StanChart notes that such issuance is a double-edged sword–it adds more product to the market over time, while at the same time raising concerns that market conditions are bad enough to warrant such a move. Analysts say the structural demand created by the need to replenish these resources in the future could drive the price of oil.
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On the natural gas front, European natural gas futures held above €50/MWh on Tuesday, about 30% above their 12-month average, following major disruptions to gas flows. Two weeks ago, QatarEnergy suspended production of liquefied natural gas (LNG) and announced force majeure following drone strikes by Iran on the Ras Laffan and Mesaieed facilities. The outage effectively cut off 77 million tonnes per annum (Mtpa) of LNG capacity, and fuel prices quickly began to rise as consumers scrambled for alternatives.
The suspension of tanker traffic in the Strait of Hormuz has cut off about 20% of the world’s LNG supply. StanChart says the disruption has exposed the structural vulnerability of the Gulf, with Qatar most vulnerable to future disruption. That’s because almost all of its LNG exports come from Ras Laffan, and this gas has to pass through the Strait of Hormuz – a narrow choke point in the sea – to reach international markets.
Replacing Qatari LNG is currently not possible in the short term, leading to high volatility in gas markets. As such, Asia’s major LNG importers are busy rebalancing their coal and nuclear power generation mix to manage limited LNG supplies, reduce reliance on volatile local markets, and maintain energy security.
China is focusing on domestic gas production after withdrawing from the local market by 2025, connecting export pipelines (mainly from Russia), and increasing coal and nuclear production in an effort to reduce reliance on imported LNG. China holds the largest number of long-term LNG contracts in the world.
Similarly, Japanese utilities are prioritizing coal-fired generation and increasing nuclear restarts to conserve gas inventories, with other operators operating coal plants at much closer to full capacity than gas units. Japan’s long-term plan aims to increase nuclear power, aiming for a 20% share by 2040. In addition, South Korea is removing restrictions on coal-fired power generation and increasing the use of nuclear power to 80% to cope with rising energy costs.
By Alex Kimani of Oilprice.com
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