The Democratic "blue wave" victory in the US midterm elections has delivered two sharply opposing forces to the oil market: rising diplomatic momentum is pushing prices lower, but the risk of another escalation is far from over.
After the election results emerged, Brent crude prices immediately fell to around $95 per barrel, while the European natural gas benchmark TTF also declined to 85 euros per megawatt-hour. Vice President Vance publicly acknowledged after the election that voters were strongly dissatisfied with high energy prices and the US-Iran war, and Trump said he would not escalate conflict in the Middle East for now. Iran's Supreme Leader had previously authorized the government to restart negotiations, despite maintaining tough rhetoric.
This situation directly hit bullish sentiment in the oil market. According to Citi, although recent diplomatic momentum is positive, market volatility will persist during the "lame duck" window before the Democratic-controlled Congress is officially sworn in, and investors should not ignore the possibility of another escalation in the near term. Under its base case, Citi forecasts Brent crude falling below $70 per barrel in 2027, while assigning a 30% probability to a tail risk of oil prices surging to $120.
Blue Wave Victory, Diplomatic Negotiation Momentum Heats Up
The Democratic midterm landslide significantly strengthened the near-term impetus for US-Iran negotiations. Trump has stated he will not escalate conflict in the Middle East, and Iran's Supreme Leader has also authorized the government to conduct negotiations, meaning the political conditions for contact between the two sides are initially in place.
According to Citi Research, after the Democrats take control of Congress, they will use "fiscal power" and war powers legislation to check the White House's foreign policy, although their seats are insufficient to override a presidential veto.
At the same time, potential Republican presidential successors, motivated by political considerations for the post-Trump era, may lean toward promoting a negotiated settlement rather than continued conflict. Trump himself may also focus more on his historical legacy in the final stage of his term, which would push him to seek closure rather than expand the US-Iran and Russia-Ukraine conflicts.
Citi also noted that Israel's election deadlock remains a variable. Incumbent Prime Minister Netanyahu may continue to pressure the US to take a hard line on Iran. However, the US midterm results have also somewhat increased the possibility of Gadi Eisenkot becoming Israel's new prime minister, and if that happens, it would shorten Netanyahu's window to apply pressure.
Two-Month "Window Period," Escalation Risk Should Not Be Underestimated
Citi warned that from now until January 3, when the Democratic-controlled Congress is officially sworn in, there is a "lame duck" period with relatively loose political constraints. The White House may use this opportunity to advance foreign policy goals and personnel changes, which could accelerate the negotiation process or trigger a new round of escalation.
The US Navy's USS Theodore Roosevelt carrier is expected to arrive in the Middle East by the end of November. According to The Guardian, this deployment may create a pattern of brief calm before arrival and rising escalation risk after arrival. In addition, a high-level meeting between the US and Russia may be held before the end of the year, and its outcome could affect both the Russia-Ukraine conflict and US-Iran relations.
Taking these factors together, Citi believes the market may remain volatile over the next two months. Even if the medium- to long-term direction points toward a diplomatic solution, near-term uncertainty remains high.
Citi Base Case: Brent May Fall Below $70 in 2027
Citi Research has set two scenarios: under the base case (60% probability), despite near-term escalation risks, multiple paths point to gradual de-escalation before the end of the year, and Brent crude is expected to continue declining in 2027 and fall below $70 per barrel; under the bullish case (30% probability), another escalation of the conflict would push Brent back to $120 per barrel next year.
Citi pointed out that in the medium term, the US domestic political landscape is increasingly inclined toward a diplomatic resolution of the US-Iran and Russia-Ukraine conflicts.
A Democratic-controlled Congress will have more room to push for increased support for Ukraine, including military aid and intelligence cooperation, and the US government may also seek to advance a ceasefire framework before the G20 summit. Considering that US support for Ukraine will tend to rise after the Democratic Congress takes office in January, there may currently be a small and brief window of opportunity for Russia-Ukraine negotiations.
Clean Energy Benefits, AI Data Centers Under Pressure
Citi believes the Democratic midterm landslide also has far-reaching implications at the energy policy level. Democratic control of Congress will provide policy support for renewable energy and electric vehicle tax credits, reversing the Republican obstruction of the past two years.
At the same time, AI and data centers have encountered clear political headwinds in key states such as Texas, Georgia, and Ohio. The election results will further increase resistance to growth in electricity and natural gas demand in those regions, creating marginal pressure on related infrastructure investment expectations.
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