The UK government has revised its internal oil price forecasts higher, assessing that crude prices could remain around $100 per barrel until at least 2028 even if a US-Iran peace agreement is reached. This is due to a new expectation that restoring energy supplies from the Gulf region will take longer than previously anticipated.
While the report is not yet public, individuals with advance knowledge indicate the latest analysis warns that pressure on energy prices will be more persistent than initially thought, worsening the global economic outlook. The UK government had originally envisioned a roughly six-month disruption to energy markets following a war's end, implying a relatively swift restoration of Persian Gulf supply flows. It now believes oil supplies from the region could take up to 14 months to recover.
If these projections materialize, it would represent another setback for Prime Minister Keir Starmer's government, which is striving to demonstrate to British voters its effectiveness in curbing the rising cost of living. This is in addition to the broader disruption it would cause to the global economy, as nations worldwide grapple with elevated energy and food prices and fuel shortages.
On the domestic front, the study suggests that whoever serves as UK Prime Minister later this year will have to contend with a deteriorating economic situation likely to persist for some time. The Starmer government is widely perceived to be nearing a collapse, with Greater Manchester Mayor Andy Burnham expected to mount a leadership challenge this summer—provided he first wins a by-election on June 18.
A UK government spokesperson stated in a declaration that the country benefits from diverse and resilient energy supplies. The statement added that the UK is collaborating with international partners to seek a permanent resolution to the US-Iran crisis and to minimize impacts on households.
The analysis shows that in the best-case scenario of a US-Iran deal this year, crude prices could still remain between $100 and $150 per barrel by year-end due to the slow recovery of Gulf supplies. The report projects that under this scenario, oil prices would stay around $100 per barrel through 2028.
According to the assessment, in a worst-case scenario where conflict reignites and causes fresh damage to the region's energy infrastructure, delaying the recovery of energy flows by several more years, prices could initially surge as high as $210 and remain around $150 through 2028. The report states that if this situation becomes reality, it would have broad implications for global inflation and economic growth in the coming years, with lasting consequences for geopolitics and security.
Bloomberg's UK recession probability indicator has climbed to nearly 40% over the past month. These pessimistic forecasts were reportedly produced by the UK's Department for Energy Security and Net Zero as part of a new government-wide assessment of the US-Iran war's economic impact. Sources, granted anonymity to discuss confidential government analysis, confirmed the forecasts have been presented to senior ministers.
Even the more moderate price trajectory outlined in the study would exceed most analysts' expectations. According to aggregated forecasts, Brent crude traded around $95 per barrel on Friday and is not expected to rise significantly above $100 by year-end.
Governments globally, including the UK, previously pledged to release an unprecedented 400 million barrels from strategic petroleum reserves to address the supply crisis. However, with the normalization of shipping flows through the Strait of Hormuz taking time, some analysts estimate the potential supply loss could now be as high as 2 billion barrels.
A previous UK government analysis suggested oil would stabilize below $100 if the war ended quickly, or rise to $150 if the conflict dragged on. Futures markets currently price oil falling below $90 by November and continuing to decline. The Bank of England's modeled worst-case scenario sees oil staying above $100 for at least the next two years, with inflation climbing above 6% early next year.
Earlier this week, Bank of England rate-setter Megan Greene noted that the case for raising interest rates is strengthening as the US-Iran war persists. UK inflation is forecast to climb to nearly 4% later this year due to rising energy bills for households and businesses.
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