Oil: Geopolitical scenarios reshape price risks – TD Securities

TD Securities strategists Ryan McKay and Daniel Ghali outline how rising Middle East tensions and Iran-focused scenarios could reshape Oil markets. Drawing on three quarter-centuries of geopolitical risk premia, they map outcomes from a New Deal to Regional escalation, with estimated Brent moves from bearish supply gains to spikes above $100–120/bbl and persistent risk premia.

Iran scenarios drive Oil risk repricing

"New Deal: In this scenario, US-Iran negotiations are successful, potentially resulting in an easing sanctions regime and a commensurate reshuffling of commodity flows. This scenario skews the most bearish for energy prices."

"Clean Break: This scenario describes a quick intervention that prompts regime change, in favor of US interests, analogous to that seen in Venezuela. We would expect a knee-jerk reaction in prices as the operation takes place, but assuming energy infrastructure remains out of scope with no commensurate damage, the implications of this scenario echo that of a nuclear deal, with supply risk premia fading relatively quickly. "

"Unilateral Action: This describes a scenario in which Iran/Israel act unilaterally in what could be seen as akin to the Twelve Day War. This could reignite fears surrounding disruptions at the Strait of Hormuz, or of a broadening regional war. We expect that prices would initially spike ($5-10/bbl) as the operation takes place, in a redux of the price action observed around the Twelve Day War, which ultimately tracked the average path for energy supply risk premia in Middle Eastern conflicts."

"Expanded US Conflict: In this scenario, the US-Iranian conflict is expanded, posing an existential threat to the existing regime, raising risks of disruptions to the Strait of Hormuz. This scenario would cause major price spikes (+$15/bbl) even if disruptions are limited in time."

"Domestic Action: In this scenario, Iranian energy infrastructure is impacted by domestic conflicts. We would expect prices to spike (+$10/bbl) as Iranian supply and exports are severely reduced, potentially resulting in a larger-than-average supply risk premia. "

"Regional escalation: In this scenario, a broader conflict raises risks to energy infrastructure beyond Iranian borders. This would significantly raise energy supply risks (at least +$25/bbl, with prices potentially trading north of the $100-120/bbl range) given the potential for significant supply disruptions across the Middle East alongside increased risks associated with the Strait of Hormuz."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)