In our April edition of Rystad's Take, Jarand Rystad shares his insights on the long-term implications of the Middle East conflict for global energy markets. Against a backdrop of exposed supply vulnerabilities, shifting investment cycles and an accelerating energy transition, he sets out the forces reshaping oil, gas and power markets for years to come.

The grim turn of events in the Middle East over the past two months has had immeasurable consequences, taking a heavy toll on societies, geopolitical relations, supply chains, and the economic outlook worldwide. Energy markets have, of course, been profoundly impacted from the outset. Without trying to predict the short-term outcome, what longer-term implications do you see specifically for oil markets, given the supply vulnerability that has been blatantly exposed in the Gulf of Hormuz?

There will be profound longer-term effects, including an existential challenge for OPEC. With the UAE having just announced its departure from the organization, it is reasonable to question whether OPEC will ever attain the prominence it once had. Could this even be the beginning of the end for the cartel? With the swift change from oversupply to a tight oil market, OPEC's role is limited in 2026 and 2027. In this context, the timing of UAE’s departure seems logical. Along a similar vein, we see a shift in the timing of investment cycles in the oil market. Higher prices and higher investments in 2026 and 2027 will shift the cycle to the right. A new downcycle could emerge in 2028 and 2029, as ample new supply is coming in while demand is being curtailed due to structural and cyclical forces. Moreover, the crisis has demonstrated the vital role played by strategic oil inventories. Most OECD countries and China had high storage levels before the Strait of Hormuz was closed – typically about 140 days of consumption – which helped to soften the price response to the disruption. However, India and Pakistan had only a few days of storage, and we are likely to see these and other countries invest much more in storage going forward. Moreover, oil volumes from Kuwait, southern Iraq, Iran, Bahrain, and other regions have been suspended by the blockade. New pipelines will likely be constructed to help such exporting nations circumvent Hormuz. Finally, there could be a reduction in Middle East investments by some international oil companies.

Do you see a lasting impact with other sectors, such as LNG exports to Asia or a resurgence of local initiatives to build out green energy or nuclear power in a bid to reduce dependence on imported hydrocarbons?

Yes, I expect the power sector will see more gas-to-coal switching – especially in India, China and Vietnam – and the pace of green energy deployment will likely rise, particularly in Asia and Europe. The LNG market will shift, with more modest demand growth compared to what was foreseen before the crisis. Prices will be higher over the next four or five years due to lower production from Qatar and the UAE, but that will likely shift to weaker prices during the first half of the 2030s due to reduced demand and excess LNG supply.

What about the long-term consequences for consumers?

End-users such as car owners, truck drivers and industries are already accelerating their shift to new technologies – a common denominator being a desire for less dependence on the Strait of Hormuz. Thus, electrification will happen faster. Moreover, costs related to storage and emergency supplies of fuel will increase. Furthermore, there has already been a noticeable shift in holiday behavior. High jet-fuel prices and the fear of armed conflict understandably deter people from long-distance travel – and this currently most prominent with respect to the Middle East and the eastern Mediterranean.

Jarand Rystad, Founder and CEO

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