How the worst oil crisis ever recorded could end in energy abundance

How the worst oil crisis ever recorded could end in energy abundance, with Claudio Galimberti Wednesday, 3 June 2026 SPEAKERS NB Noah Brenner — Host, Let's Talk Energy CG Claudio Galimberti — Chief Economist, Rystad Energy [00:00] NB This is Let's Talk Energy, your go-to podcast for smart energy insights. I'm Noah Brenner. The war in the Middle East has brought the geopolitics of energy and near-term market disruptions into sharp focus as the world struggles with higher prices and tighter supplies of oil and natural gas. But the underlying fundamentals, which pointed to growing oversupply in both oil and, to a lesser extent, natural gas markets before the crisis, persist despite these war-driven distortions. NB And while no one can predict how long it could take for the US and Iran to reach an agreement that will resolve this conflict, the two sides continue to negotiate and at times say they're making progress. So how long could this energy shortage and this price inflation that we're seeing today persist after some sort of agreement is reached to end the conflict and to normalise flows through the Strait of Hormuz? NB What changes to energy trade flows or policies might be more lasting, and what shifts might be less durable as countries and markets digest this shock and steel themselves against the future? And finally, which factors will be most important to watch to determine how the world and global markets recover from this massive shock to the energy system. To help us understand the interaction of current events with longer-term trends, we're joined today from Houston by Claudio Galimberti, Rystad Energy's Chief Economist. Claudio, welcome back to the programme. CG Thank you for having me back, Noah. NB Well, let's talk energy. You and I spoke at the very start of the war about its immediate impact on markets and the global economy. How has your thinking evolved over these past few months? What surprised you about what we've seen, and maybe what hasn't? CG The impact of this energy crisis on the economy — that hasn't surprised me that much. We said from the start that very high oil and gas prices in Europe and around the world would have a negative impact on the economy. And what we saw is that indeed in places like China and Europe, this has come to fruition, specifically already in the month of April. CG In the United States, we have seen an increase in inflation — that was also highly expected. But the US economy has fared significantly better than all the other economies. That was also not surprising. We said from the get-go that the United States of 2026 is a completely different economy from the one in 2006 or 2008, when we saw the last big jump in prices, or the one in 2010 and 2015 when there was another big jump in prices. The United States is a fair bet, but the economy is very much at risk of falling into a recession if oil prices stayed around $120, $140, let alone $180 per barrel. NB What's different about it? What's the fundamental change that you think has made it more resilient than it would have been, say, 20 years ago? CG US shale. That's the answer. The US was a major oil importer in 2006, 2008, and even in 2010 — we were importing 12, 13 million barrels per day. Right now, we are a net oil exporter. So just in 15 years, US shale oil and gas made an enormous difference. CG If you are an oil exporter and a natural gas exporter in a situation like this, of course you benefit. The United States is making a lot of money by providing oil all around the world when oil prices are at these high levels. The other big difference is the huge investment in AI that we have seen specifically in 2025 and 2026. This has been the surprising piece. [04:00] CG If you look at the performance of equities — for instance, the NASDAQ — that is the surprising piece. We knew that artificial intelligence and data centres were going to be the big thing at the start of the year, but the amount of investment that has been deployed by Silicon Valley is a surprise to the upside. NB Rystad Energy has just updated its House View report — this is something we do periodically, looking at both near-term and longer-term trends in the energy system. Give me the most important takeaway in a single sentence. Digest more than 80 pages of analysis down into the one thing you think people need to know. CG This crisis has put energy security back at the top priority for all governments — not just the United States, China, or Europe, but all governments in the world now understand that energy security is the dominating factor in their energy policy. Of course, we are living through the largest, the most profound oil crisis in history — the closure of the Strait of Hormuz. One of the legacies that we said from the beginning will be a renewed focus on building SPRs. CG The United States, Europe, Japan — all the OECD countries knew the lessons from the 1970s crisis and came into this crisis prepared. Countries like India and Southeast Asia don't have them. My expectation is that coming out of this crisis, the first thing they will do is start building them. India has them to some extent, but all the other countries in Southeast Asia don't. CG Now, there could be many other legacies, but this brings me to the second takeaway of the House View report. I caution against assuming that this is going to have many structural effects on the energy system. The reason I say so is that there are quite a few historical examples from the 1990s of crises that appeared at the outset as major crises and then turned out to be just a blip. This Iran war started on February 28th and therefore we are three months into the crisis. You may argue three months too many, but you can also say only three months — specifically if you compare it to the crisis of the 1970s that lasted for 15 years. Let's not jump the gun and say that everything is changing in the energy system. We need to see how long this crisis is going to last. NB You've pointed out that maybe this looks a bit more like the invasion of Kuwait — the initial Gulf War — when we did see a spike in energy prices but it was much more short-lived rather than the longer-term Arab oil embargo. Is that a good way to contrast it? CG In the sense that specifically if we are going to have a deal in the next couple of weeks, the deal becomes sustainable and then all parties are happy — the United States is happy that Iran doesn't have a nuclear programme, Iran is happy that they no longer have sanctions on their oil, and the Strait of Hormuz is free for navigation in international waters. That will be arguably a blue sky scenario, and sitting here at the end of May 2026, it doesn't look like we're going to go through that blue sky scenario. Then yes, we most likely go back to the processes that we had before the war, probably to some extent even better. And therefore this looks like the Gulf War crisis of the 1990s, where you had 10 years of low oil prices before, then two or three months of very high prices, and then another 10 years of low prices. I'm not necessarily saying that we're going to have lower prices for 10 years, but I'm saying that this will look in hindsight like a blip in history. [08:00] CG There are some caveats. If the United States and Iran are unable to reach a deal, then we are in a situation of a longer disruption. We are, as a matter of fact, factoring in at least between now and January a narrow deal — a deal that would ensure the restoration of some flows to the Strait of Hormuz and a gradual uptick in production in the Middle East, close to the pre-war level of 26 million barrels per day. But that would intrinsically be a more fragile outlook, with many downside risks. And if that is the case, at the end of the day, it all depends on where oil prices will be. If oil prices remain above $100 per barrel for the next three, four, five quarters, then you will start to see more structural effects on demand and on supply. NB If we assume a blue sky scenario of normalisation through Hormuz and a return of production, what does the market look like once that happens? Are consumers doomed to years of high prices given all the barrels that we've lost, or does that surplus we were talking about happening this year come back — was it just delayed? CG Two points here. The first is that the high prices we have seen so far have already triggered more production in US shale. We were forecasting before the war stable production of 13.5 million barrels per day over the next two years. Right now, we are forecasting an increase between now and 2028 from 13.5 to 14.5. So we have an additional one million barrels per day increase in US shale that we didn't have before. If we consider that all other production is most likely not going to change — probably some increase in Latin America, specifically in Guyana and Argentina — what we are seeing is that we are going to see more production after this Middle East crisis than we had before. CG We were going into the crisis with a large surplus. I remember coming here for House View number two and talking about the huge surplus we were going to see in the next two to three years. As a result of the war, coming out of the Middle East crisis, we're going to have an even larger surplus. But here is the caveat: we will need to rebuild the inventories. If we focus on what's going to happen to Middle East production for the next six months, we will probably not see a full normalisation until October, even if we have an Iran deal. And by then we will have lost close to two billion barrels of production. The total global inventories — including the oil in transit, the oil on water, the oil in refineries, and the oil in tanks — is between 7.5 and 8 billion barrels. So we will have lost as a result of this crisis close to 30% of the inventories. Those need to be rebuilt. [12:00] CG If you take that into consideration, and what I said earlier about the SPR, what we are basically factoring in is an additional temporary demand for stock refill and SPR of 1 to 1.5 — in some cases could be 2 — million barrels per day for the next two to three years. That will reduce, temporarily of course, the amount of oversupply we're going to see in the market and therefore provide a floor to prices for the next two to three years. NB What about a worst-case scenario? What if we don't get a resolution to this conflict anytime soon? CG We have four scenarios. One is full resolution — we give it a 15% probability — which entails basically the full restoration of the Strait of Hormuz to pre-war levels. Then we have the base case, which is the narrow deal I've been referring to. This entails something like 10 million barrels a day of flows through the Strait of Hormuz and the utilisation of the bypass — the East-West Pipeline and the Fujairah pipeline — which would allow production in the Middle East to go back to almost pre-war levels. Then we have a stalemate, with flows through the Strait of Hormuz of roughly 5 million barrels per day — a probability in our view of something like 20%. And then we have the resumption of hostilities, which would entail flows through the strait close to 1 million barrels per day, the level we saw basically in March and April. CG We don't think that the resumption of hostilities is actually a likely scenario because it's going to be too painful for all the parties involved — the United States, Iran, and eventually China. This is a scenario with oil prices above $200 per barrel. That is equivalent to a mega recession — something like the great financial crisis of 2008. I think that all governments are aware of that. I've been talking about this as a nightmare scenario for the past two, three months, saying that we only have a limited time to avert it. NB Certainly, as you point out, everyone has an interest in avoiding that. But it does also provide a lever for negotiations, I suppose, for Iran. CG This is probably the scenario that the Revolutionary Guard is aiming at, if you think about it, because that is indeed their stronger leverage. If they manage to keep the Strait of Hormuz shut, then most likely what's going to happen is that the United States will try to free it up through military activities. And that is a scenario that can last for two or three months, four months. The longer it lasts, the more painful it becomes. That's why the United States will try to avoid it, in our view, by pursuing a narrow deal — a deal that would allow both the United States and Iran to claim some sort of victory and therefore step back, and also allow a resumption of sufficient flow through the Strait of Hormuz. NB You mentioned places like India, China, and the US which have existing SPR programmes. Do we see other countries building SPRs, and are we talking tanks of crude here, or do we see product reserves being built up as well? [16:00] CG If we are going through a more fragmented world — and that does look like the direction of travel for the next few years — then you're going to be prepared. This is, as a matter of fact, one of the legacies, and we talk about this in detail in House View Report number three, the interim report. One of the legacies is more energy security. More energy security means higher redundancy. Of course it's costly, but it's even more costly not to have this redundancy if you are in a state of crisis like you are right now. Places like Thailand and Vietnam have been under emergency demand containment as a result of not having enough inventories and not having sufficient domestic production and refining. What's going to happen is that in our view, most countries will invest in this redundancy — SPR and more commercial stocks. CG On product SPR — if they cost the same as crude SPR, everybody should have product SPR, because you cannot do anything with crude — you need to refine it in order to utilise it. The problem is that, for instance, jet fuel — which caused so many headaches specifically in April in Europe — is very costly to hold in SPR. The specs mean you cannot keep the jet for many months, let alone years — you need to eventually replace it. Countries that do have refining capacity, like the United States and India, are probably just going to have crude SPR — it's enough to have crude and then you convert it. If you don't have refining, then you must pretty much have a product SPR. Think of Australia, think increasingly of places like Europe that have shut down a lot of their refining capacity in the past few years — these will invest more in product SPR. NB Is the 1.5 to as much as 2 million barrels per day of additional demand to refill the SPR real demand, or do we need to think about it differently as we consider the underlying market fundamentals? CG Strictly speaking, it is not real demand, because what I consider real demand is either demand for energy — so the consumption of energy right now, you burn your oil — or demand for feedstock. This is neither. It's basically deferred demand, because you're going to put these barrels into tanks and utilise them later. The way I refer to it is temporary demand. We saw it in China for the past 10 years — China has been investing in building its SPR and commercial stocks, which created an additional 300 to 400,000 barrels per day. But you need to account for that, because no matter whether you consume it today or two years from now, you still need to produce it. And that's the reason why this becomes so important to account for. NB What role is demand destruction playing in the balances you've been talking about? I drove from Houston almost to New York over the US Memorial Day holiday weekend and I definitely didn't see as many cars on the road as I might have expected, and I definitely paid a lot more for gas than I had hoped for. How are we thinking about demand destruction and how does that factor into balancing the market? CG In the United States, we have not seen much of that yet. $4.5 per gallon is still something that the vast majority of US households can still afford. At the margin, you have some families — specifically those with income below $30,000 per year — who may find it increasingly complicated to deal with these prices. So you have some marginal demand destruction in passenger transport and in aviation. It's more visible in lower-income countries and in countries that are currently under demand restriction. I mentioned earlier Southeast Asia — specifically Vietnam and Thailand — they have been under emergency demand containment since pretty much the start of the war. In order to see a real effect on demand destruction, I think we need to see Brent at around $124 for more months, and we are no longer there. So from this standpoint, I'm not too concerned that we're seeing significant demand destruction. [20:00] NB How are we thinking about price trajectory? You stepped through some potential scenarios as well as potential oversupply, particularly beginning say next year. CG In the House View, we utilise the base case when it comes to this Middle East crisis, which entails a restoration of production in the Middle East as a result of a narrow deal between the United States and Iran for the next six months. Having that in mind, if we indeed go through a narrow deal and therefore have production approaching the pre-war level by October in the Middle East, then oil prices as an average in 2026 would be at around $102 per barrel. And then gradually they will decline in 2027 towards $80 per barrel and towards $70 per barrel in 2028. If we don't have an Iran deal — if we go through a stalemate or a resumption of hostilities — then these are scenarios with prices above $140 per barrel, and we need to factor in a recession at that point. NB We've said that if we get a resolution here quite quickly, or a shorter conflict, we don't perhaps see as many structural shifts to the energy system — although it has certainly reinforced this emphasis on energy security along with the build-out of the SPR. But we do see some more durable shifts perhaps in the gas business, and particularly in LNG markets. Why is the impact there perhaps more structural than it is in crude, and what exactly might we expect? CG What we see in the LNG market is a more structural shift, both in the short term — in the sense that the reduction in production at RasLaffan, which is the major liquefaction facility in Qatar, is supposed to last for three years. With that in mind, our price projections for LNG for the next two to three years are actually significantly higher than they were before the war. But that is going to have an impact longer term. All of Asia — including China, which was the major market for LNG production from the Middle East — is going to become less competitive. So these high prices right now will result in the gradual destruction of demand in the late 2020s and 2030s. And therefore what we say for LNG is that it's going to be higher prices for now, but then these will result in lower prices in the longer term. That is what we mean by the structural effect of this crisis on the LNG market. [24:00] NB Does the same stockpiling trend apply to natural gas and LNG? Do we start to see countries that are dependent on LNG flows from the Middle East start to build gas storage? CG If you don't get the LNG, then the other source would be pipeline — and those are limited. If I think of Europe, the stop of flows of Russian gas as a result of the war in Ukraine in 2022 resulted in increasing LNG flows from the United States and, for the past two or three years, increased flows of gas through pipeline from Algeria. But now that the LNG market is short — we don't see growth in LNG volumes in 2026 as a result of the Middle East crisis — the options are limited. So what's happening in the power and natural gas market is that you flip back to coal. This is what we see in Asia and to some extent in Europe — these very high prices for both natural gas and oil have forced a resumption of coal. So you have increasing coal demand and also increasing coal prices. Of course, you also have a significant uptick in investment in renewables, but these are longer term. What we are seeing right now is that the first thing that happens is you get to the other available energy source — which is coal. In order to have an increase in renewables, in solar and wind, that requires investment and is longer term. The crisis will need to be longer-term to see a significant change in renewables investment. NB How are you thinking about this broader question — does this accelerate the energy transition? If we see investment in both renewables and coal, is that an accelerated energy transition, or how does the world grapple with that longer term? CG By energy transition, we mean a transition towards renewables. What we've seen right now is not necessarily just that. We do have more specific statements by the European Union that they want to invest much more in renewables because that is energy security — if you think about it, for many European countries that are net fossil fuel importers. But at the same time, many governments are getting back to coal because that is a readily available energy source, and that definitely is not something that will reduce emissions. CG Let me go back to the point about molecules versus electrons. This is very much a crisis of liquid hydrocarbons. It's the largest oil crisis we have seen — the closure of the Strait of Hormuz. It's also an LNG crisis — 20% of the LNG market comes from Qatar, and as a result of that the flows have been shut for three months. That is also a natural gas crisis. Can you address a crisis that is happening in oil via renewables? The answer is yes, but up to a point, because renewables utilise electricity — electrons — as an energy carrier, while oil utilises molecules. The two are not necessarily readily substitutable. [28:00] CG There is one caveat. Electric vehicles are a potential substitute for the internal combustion engine car — by all means they are. And in places like China, many East Asian countries, and also African countries, we have seen in the past few months an uptick in the interest and also in the sales of electric vehicles. Can we now assume that this is going to be a trend that continues for the rest of the year and maybe the next two, three, four years? I cannot say that is going to happen simply because electric vehicles in many parts of the world are still more expensive than the equivalent conventional car. Consumers and households will only consider the purchase of an electric vehicle if oil prices remain high for a very long time. CG This is something we saw in the 1980s — not with the electric vehicle, but with much more fuel-efficient vehicles, specifically those produced in Japan. The 1970s crisis lasted for so long, something like 12 years, that eventually families said enough is enough and we need to buy more fuel-efficient vehicles. We started to see even smaller cars in the United States. And this lasted for something like 10 to 15 years. Then back in the 1990s, when oil prices were low for long enough, we started buying big SUVs that were gas guzzlers again. What we have right now is a technology that is a good substitute for the conventional car, but it's still more expensive in many parts of the world. CG Families will make this cost-benefit analysis. If gasoline prices — $4.5 per gallon in the United States — stay at those levels for two or three years, then some families, come the decision to buy a car after six, seven, eight years, will say maybe this is the time to consider an electric vehicle, even if it's more expensive, because they'll make it up in maintenance costs. However, if prices go down to $3 or $2.5 per gallon in the next two to three years and the electric vehicle is still more expensive, they're probably going to buy a conventional car. The possibility of an uptick in electric vehicle adoption is there, specifically in those countries where gasoline prices are already high — think Europe, think many places in Asia. But where oil prices are relatively low outside of this crisis, the decision there is still going to be more long term. [32:00] NB Any parting thoughts? Is there anything we haven't touched on that you think people should know? CG We're still in the middle of this crisis. Even if we were to sign a deal in the next few hours, the oil markets and the natural gas market will take months to normalise, and this will come with a lot of volatility and therefore a lot of things to analyse and to talk about. If our key takeaway is energy security — and cementing energy security — is secure energy in a fragmented world more expensive? Energy security means redundancy, which intrinsically means less efficient and therefore more costly. The only caveat I have is that the other legacy of this crisis appears to be higher production of oil. US shale is supposed to increase production. If that is the case, let's not forget we were coming into this crisis with a surplus. We are getting out of this crisis with potentially an even higher surplus. So you're going to have these two elements — more costly energy production as a result of energy security and redundancy, but also higher surplus. There's going to be a very interesting tension in the market in the next couple of years. NB Back to that old adage in the oil business — the cure for high prices is high prices. CG Exactly. NB Claudio, thank you so much for joining us. CG Thank you. NB Let's recap. While the current oil crisis has been the most profound in history in terms of the level of disruption, it may not necessarily produce the same change in the energy system if the duration is relatively short. Nonetheless, it has cemented the existing emphasis on energy security and will push governments to build strategic stocks, even if they're more costly to maintain. Filling this storage will help offset what is shaping up to be a significant surplus in oil markets if and when we see a return of flows through the Strait of Hormuz, as well as growth in alternative routes that avoid the infamous pinch point and supply additions from places like the US. NB Thanks for listening to Let's Talk Energy. 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