Citi Predicts Near-Term Oil Price Support From Geopolitical Tensions With Potential Long-Term Declines

Global energy markets are currently navigating a complex period of instability, with Citi analysts highlighting the dual role of geopolitics in shaping the cost of crude. In a recent research note, the bank explained that the presence of regional conflicts and diplomatic standoffs is providing a necessary floor for oil prices. Without these tensions, current supply and demand fundamentals might otherwise suggest a weaker pricing environment. For now, the “risk premium” associated with potential disruptions to major shipping lanes and production hubs is keeping Brent and WTI benchmarks at their current levels.

However, Citi cautioned that this support is inherently fragile. The bank’s energy strategists pointed out that any concrete progress toward peace deals or a general de-escalation of hostilities would likely remove this premium almost instantly. If the market shifts its focus away from war-related risks, the reality of slowing global economic growth and increasing production from non-OPEC nations could exert significant downward pressure on prices. Investors are essentially betting on the continuation of current tensions, making the market highly sensitive to any news regarding international mediation or ceasefires.

The report also touched upon the role of major oil-producing nations in managing this volatility. While some groups have attempted to stabilize the market through production cuts, their influence is often overshadowed by sudden shifts in the geopolitical landscape. Citi notes that as long as the threat of supply chain interference remains high, the market is likely to ignore signs of a global surplus. This creates a challenging environment for refineries and energy consumers who must plan for long-term costs in a market where a single diplomatic breakthrough could slash prices overnight.

Furthermore, the bank discussed the impact of shifting energy policies in major economies. While the long-term trend remains a transition toward renewable sources, the immediate need for fossil fuels ensures that any threat to current oil flows is met with a sharp price response. Citi’s analysis suggests that for the remainder of the year, the “geopolitical floor” will be the primary driver of market sentiment. Traders are expected to remain on high alert for any signs of a structural change in international relations that could alter this dynamic.

Looking ahead, Citi projects that the volatility seen in early 2026 will persist as long as the global political map remains fragmented. The firm emphasizes that while energy prices are high today, the underlying fundamentals of the market are not as robust as they appear. A “peace dividend” in the form of lower fuel costs remains a distinct possibility if current diplomatic efforts bear fruit. For now, the energy sector remains in a state of watchful waiting, balancing the reality of today’s risks against the potential for a sudden market correction.