Rystad raises no-deal risk in US-Iran talks, sees higher oil price premium

By Romel S. Gurky

Rystad Energy has raised the probability that the United States and Iran will fail to reach a substantive agreement to 55%, citing renewed security risks around the Strait of Hormuz and increasing geopolitical uncertainty that could keep oil prices elevated.

The consultancy said its base case remains a limited agreement between Washington and Tehran, but assigned it a 40% probability, down as maritime attacks resumed and the United States reimposed a naval blockade on Iranian ports. It now assigns a 35% probability to a prolonged stalemate and a 20% probability to renewed sustained fighting, while a full resolution carries only a 5% probability.

Rystad identified Aug. 16, when the 60 day memorandum of understanding negotiation window expires, as the key date for oil markets.

"The narrow deal is still our base case, but it has become a considerably less comfortable one," Jorge Leon, Rystad Energy's senior vice president and head of geopolitical analysis, said in a market note.

He said both sides retain strong incentives to avoid a complete breakdown, with the United States seeking lower oil prices and a diplomatic outcome ahead of the November midterm elections, while Iran stands to benefit from access to frozen assets and oil export waivers under a proposed economic package.

According to Rystad, a limited agreement would leave a geopolitical risk premium of US$5 to US$10 per barrel in Brent crude prices because key issues, including Iran's nuclear program and control over commercial shipping through the Strait of Hormuz, would remain unresolved.

Under a stalemate scenario, negotiations would continue without a meaningful breakthrough, maintaining a risk premium of US$10 to US$15 per barrel. Rystad expects shipping through the Strait of Hormuz to recover gradually to around 8 million barrels per day by November as traders, insurers and shipowners adapt to continuing security risks.

If fighting resumes, the consultancy estimates the geopolitical premium could rise to US$15 to US$20 per barrel. In that scenario, negotiations would collapse, military activity would intensify, Iranian oil exports would fall to around 300,000 barrels per day, and traffic through the Strait of Hormuz would remain severely disrupted.

Rystad said the probability weighted geopolitical risk premium embedded in oil prices is now significantly higher than in mid June, reflecting the increased likelihood of prolonged tensions or renewed conflict.

Editing by Alexander Ginting