Energy Musings - June 22, 2026
An interesting observation about shifting dynamics between Saudi Arabia, the United States, and the other Persian Gulf nations suggests that the future oil market could see much lower oil prices.
Persian Gulf Dynamics And The Global Oil Market
The Memorandum of Understanding (MOU) signed by Iran and the United States last week reopens the Strait of Hormuz without tolls and allows the sale of Iranian oil. According to U.S. Vice President J.D. Vance, last Friday, 16 million barrels of oil were exported through the Strait, a record, which is why oil prices are lower than they were merely days before.
The political wrangling over the details in the MOU has gone nonstop since the 14 points of the proposed agreement were publicized. We are not going to offer an opinion on the MOU, public comments, or written commentary. Still, we found one analysis of the MOU particularly interesting for its implications about future global oil markets.
The commentary was publicized by Steven Hayward, an American conservative author, political commentator, policy scholar, and author of the Political Opinions column on Substack. He has been a long-time contributor to the PowerLine blog, is a scholar at the University of Texas Civitas Institute, and is a member of The Three Whiskey Happy Hour podcast.
The commentary Hayward published was written by Clayton Wood on his Facebook site, FROM CONFUSION TO CLARITY, on June 18. The column was titled, “The Boy Who Cried Wolf.”
Someone questioned Wood about his view of the MOU. He answered by saying, “If Iran is a very good boy, it gets a pony. I do not believe the IRGC knows how to be a very good boy for long, and everyone reading the MOU is furious about the idea that it might get the pony anyway.” Yes, few people believe Iran can be trusted after 47 years of sponsoring terrorism globally. And many of them read the MOU as a capitulation by the United States. Wood disagrees.
Wood’s use of the boy who cried wolf comes from the fable about a shepherd boy who repeatedly tricks villagers into believing a wolf is attacking his flock. When a real wolf appears and the boy cries for help, the villagers dismiss it as another false alarm. The wolf devours the sheep. Later English versions have the wolf eating the boy, too. The moral, as stated at the end of the Greek version, is that “this shows how liars are rewarded: even if they tell the truth, no one believes them.”
Wood explained why he used the fable.
“I. The Track Record
“For months, we were told Trump would never strike Iran.
“Then he did.
“We were told Israel could not seriously damage Iran’s military capabilities.
“Then it did.
“We were told Iran’s nuclear program was untouchable.
“Then it was hit. Repeatedly.
“We were told Hezbollah, Hamas, the Houthis, and Iran’s proxy network were stronger than ever.
“Then, one by one, they were degraded.
“Now we are told the agreement is a catastrophe.
“Perhaps it is.
“But how would the people who reached that conclusion before reading it know?
“That is not analysis. That is tribalism dressed in the language of hawkishness.
“At some point, the boy who cried wolf loses credibility. Not because wolves do not exist, but because he keeps announcing wolves that never arrive, and then announces the next one with identical certainty, and the one after that.
“That habit has consequences.
“When the real wolf arrives, nobody is listening.”
Wood offers views on Iran’s objectives in agreeing to the MOU and what he believes it actually achieved. He believes it had five objectives when it entered discussions with the U.S., but in his assessment, Iran did not fully achieve any of them and only two partially.
Wood asked: Does this Iranian “leader” look happy to you?
The MOU And The Future Oil Market
We were most interested in Wood’s views on the relationships among the U.S. allies in the Middle East and how the altered dynamics among them and with the United States could change popular views about the future of the global oil market. His discussion is below, with our highlights of some key points.
“There is a part of this story that should not be buried, and I am not going to bury it.
“Saudi Arabia is one of the reasons the Strait of Hormuz was not fully sanitized.
“Trump announced Project Freedom as the successor to Operation Epic Fury. Its purpose was to protect commercial ships, reopen the Strait, and establish safe passage backed by American military power.
“Then Saudi Arabia refused to allow the United States to use Prince Sultan Air Base and Saudi airspace for the operation.
“Trump personally called Mohammed bin Salman.
“The answer remained no.
“Without Saudi bases and airspace, the military plan became far more difficult. Trump publicly described the pause as an opportunity for negotiations, but the operational reality was that America’s most important Gulf security partner had refused the access needed to carry out the mission as planned.
“Saudi Arabia wanted America engaged enough to protect the Kingdom, but not so victorious that the regional security architecture ceased to depend upon Saudi cooperation.
“Saudi Arabia also experiences a Hormuz closure differently from many of its neighbors. The UAE, Qatar, Kuwait, and Iraq depend heavily on export routes passing through the Strait. Saudi Arabia has substantial westbound export capacity through pipelines carrying oil to the Red Sea. Those pipelines cannot remove every economic and logistical consequence of a closure, but they give Riyadh an alternative that many of its neighbors do not possess.
“Saudi Arabia suffers from instability in the Gulf, but it is more insulated from a prolonged closure than states whose energy exports have no comparable Western outlet. It can also benefit when threats to Gulf shipping place a premium on oil and keep prices elevated.
“A fully sanitized strait, a weakened Iran, and a UAE increasingly willing to operate independently of Saudi oil policy would put downward pressure on the revenues Riyadh depends upon.
“Saudi Arabia made its choice. Now it should bear part of the cost.
“If the Saudis helped prevent America from permanently neutralizing Iran’s capacity to coerce the strait, they should not expect the United States to subsidize every consequence. Let Saudi and Gulf money become the inducement that keeps Iran from financing the Houthis. Let the Gulf states carry the burden of making the economic side of this agreement work. [Reference to the $300 billion investment fund.]
“An open Strait and a more competitive Gulf energy market are part of the price for playing both sides.”
How many of Saudi Arabia’s policy actions were driven by the decision earlier this year for the U.A.E. to exit from OPEC? That move freed the country from the oppressive quota that kept it from producing as much oil as it could. Now, the U.A.E. is planning to expand its export pipeline capacity to match its increased production capacity. Since this pipeline avoids the Strait, there are no limitations on the U.A.E.’s oil exports beyond the nation’s physical production limitations.
The International Energy Agency (IEA) has been predicting lower oil consumption with the closure, but it now sees a recovery in demand. It is forecasting consumption of 105.3 million barrels per day (mmbd) in 2027, a 2 mmbd increase over 2026’s consumption. However, it sees supply climbing by roughly 8 mmbd, pressuring global oil prices amid a 5+ mmbd oil surplus. There will be extreme pressure on OPEC to manage the surplus, but it may have fewer levers than in the past.
Will OPEC be able to convince Russia to cut its oil exports, given the state of its economy from the war with Ukraine? We doubt it, as Russian President Putin needs the revenues to fund his war and stimulate his economy.
What other significant oil-producing member of OPEC is prepared to help Saudi Arabia manage such a massive oil surplus, now that the U.A.E. is gone? Venezuela would seem to be a candidate. However, given its relationship with the U.S. following its removal of Venezuela’s ruler and its help in boosting the country’s oil output, we doubt it will align with OPEC/Saudi Arabia. Despite his “drill, baby, drill” mantra, President Trump would like to see lower oil prices to spur further economic stimulus.
A global economic rebound, once there is a free flow of oil and other products from the Persian Gulf, might see an even larger rebound in oil consumption than forecast by the IEA. How quickly that will impact oil consumption is an open question. Final 2027 oil consumption will depend on how aggressively countries act to refill their strategic oil reserves. Additionally, how many nations will decide to increase their oil reserve storage to protect their energy security? Those barrels could add to near-term demand, but they will prove transitory, pushing a potential glut into 2028.
In the U.S., we have recently seen an increase in the oil rig count, as operators have stepped up activity in response to higher oil and liquefied natural gas (LNG) prices. How quickly will they reduce drilling as oil prices trend back toward pre-conflict levels? Some offsetting drilling pressure might come from global LNG prices remaining elevated for the foreseeable future, as Qatar must rebuild the 17% of its LNG export capacity lost from Iranian attacks on its facilities. The U.S. is the primary source of the increased LNG cargoes European nations need to offset the loss of Qatar’s supply.
Recently, OPEC released its 2026 World Energy Outlook 2050, which shows that oil demand will increase from 105.1 mmbd to 124.1 mmbd in 2050, an 18% increase. The OPEC forecast is roughly 11 mmbd higher in 2050 than the IEA’s Current Policies Scenario. But both organizations forecast steadily increasing demand for oil and gas over this period due to population growth and economic growth. Both organizations foresee lower oil consumption in developed economies. The driver of global oil consumption is economic growth in Africa, Asia, India, and South America. All of these regions will experience improved living standards, which necessitate greater per capita energy and oil consumption. This should be viewed as positive for the world.
Although the IEA and OPEC agree about oil’s long-term growth trend, they differ about the near-term market outlook. OPEC Secretary General Haitham al-Ghais says that he rejects the IEA forecast of a 5+ mmbd production surplus. He characterized it as inaccurate and potentially damaging to long-term market stability and essential oil investments.
He further chastised the IEA in an interview with CNBC. “What does the IEA see that OPEC and the rest don’t see? [We focus] on fundamentals and not putting many ifs and buts in our forecasts, but rather focusing on actual numbers,” said al-Ghais. “We’re not about making a fancy headline that will be catchy. Sometimes, it’s best not to make such assumptions…when they are not really based on actual facts and figures,” he went on to say. “Ultimately, these headlines only create more volatility.”
While the long-term outlook for oil is positive, the near-term outlook may prove more challenging. Many nations face critical decisions about how quickly they will refill their strategic storage reserves. Will they be slow to ramp up purchases, waiting for even lower oil prices in the future? Oil companies, traders, and forecasters will all have to make assumptions about the time of the refill purchases.
Every nation’s economic recovery will vary as government policies implemented during the conflict and the closure of the Strait of Hormuz are unwound. Given the uncertainty about the reopening of Hormuz, near-term demand and supply forecasts become highly speculative. Few people knew that the U.S. was helping to get millions of barrels of oil through the Strait in recent weeks. It was possible because it could escort ships operating without their responders engaged, preventing Iran from knowing their movements, since its radar and other sensing equipment had been destroyed. The market knew because oil prices were weaker than expected in the weeks leading up to the MOU announcement.
We think Clayton Wood has highlighted a new dynamic in the Middle East and OPEC involving Saudi Arabia, its Gulf neighbors, and the U.S. Overshadowing this dynamic is the status of Iran and how its neighboring Gulf countries, which it just attacked, will treat it. Predicting how it all unfolds is dangerous. Appreciating these dynamics, however, is critical when considering where global oil prices are headed over the next 12-24 months.