Oil prices climbed sharply last week following Israel’s airstrike on Iran and the latter’s retaliatory action on Tel Aviv.
However, the rally is likely to be short-lived unless the conflict escalates further in the coming weeks, according to Daniel Ghali, a senior commodity strategist at TD Cowen.
In a recent note to clients, Ghali argued that without additional intensification, the geopolitical risk premium in oil prices is expected to fade.
Ghali examined historical data to conclude that oil prices could stall or even reverse course in the back half of 2025.
At the time of writing, Brent crude is trading at about $70, which is more than 15% above its year-to-date low in early May.
Why oil prices may have peaked already?
Ghali said the current rally in oil prices will soon run out of steam since “historically, geopolitical risks typically fade within one month – and completely evaporate within six months.”
Data from 14 historical analogues since 1948 suggests it takes an average of 2.36 months for oil prices to reach their peak following such geopolitical shocks, with an average gain of about 17%.
So, the initial surge in oil prices following the Israel-Iran escalation in recent sessions is already on par with the historical moves seen in the world’s most important commodity in response to comparable geopolitical conflicts since the 1940s.
Additionally, the TD Cowen strategist was quick to note that the 1973 Yom Kippur War, during which prices spiked an unusual 135%, skews the data significantly.
When focusing only on post-1980 events, the average gains are far more muted, indicating short-term rallies like the current one are often followed by stabilisation or reversal, particularly when the global economy is facing macro headwinds.
What could trigger a further increase in oil prices?
Ultimately, what’s next for oil prices over the coming weeks and months will depend on whether the Israel-Iran tensions remain contained or spiral into a broader regional war.
And while analysts across Wall Street appear largely aligned in expecting a limited conflict, there are dissenting voices, too.
“We would note fade any oil price rally; this is war,” wrote Jan Stuart, global energy strategist at Piper Sandler, highlighting the unpredictable nature of such military escalations.
According to experts at JPMorgan, oil prices could soar to as much as $130 if geopolitical tensions slip out of control in the Middle East or the military strikes in the region result in damage to energy infrastructure in the region.
If key facilities like pipelines, refineries, or offshore platforms are hit, they warned, global supply disruptions could lead to an unparalleled increase in oil prices through the remainder of this year and into 2026.
For now, oil markets remain on edge. In the coming days, how the Israel-Iran conflict unfolds will determine whether the latest surge marks the start of a longer-term trend or simply a geopolitical blip in an otherwise balanced market.
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