Saudi Arabia Sees a Spike to $180 Oil if Energy Shock Persists Past April

Saudi Arabia’s oil officials are working frantically to project how high oil prices might go if the Iran war and its disruption of energy supplies doesn’t end soon—and they don’t like what they are seeing. 

The base case, several oil officials in the Gulf’s biggest producer said, is that prices could soar past $180 a barrel if the disruptions persist until late April. 

While that would sound like a bonanza for a kingdom still heavily leveraged to oil revenue, it is deeply concerning. Prices that high could push consumers into habits that slash their oil use—potentially for the long term—or trigger a recession that also hurts demand. They also would risk casting Saudi Arabia in the role of profiteer in a war it didn’t start. 

“Saudi Arabia generally does not like too-rapid increases in oil, because that then creates long-term market instability,” said Umer Karim, an analyst of Saudi foreign policy and geopolitics with the King Faisal Center for Research and Islamic Studies. “For Saudis, the ideal equation is a relatively modest increase in prices while their market share remains stable.” 

Saudi Aramco, the country’s national oil company, which handles production, sales and pricing, declined to comment. 

This week’s strikes targeting energy facilities have pushed oil prices higher . In retaliation for an Israeli strike Wednesday on Iran’s South Pars gas field , Tehran hit facilities in Qatar’s Ras Laffan energy hub and attacked other Gulf infrastructure including Saudi facilities at Yanbu, the Red Sea end of a pipeline that can take crude around the chokepoint in the Strait of Hormuz . 

Iran also continued to hit ships in the Gulf, extending a string of attacks that have all but shut the strait, the narrow conduit for 20% of the world’s oil shipments. 

Attacks sent benchmark Brent futures as high as $119 a barrel before easing back Thursday. The contract’s all-time high, reached in July 2008, was $146.08.  

“$200 a barrel is not outside the realms of possibility in 2026,” analysts at energy consulting firm Wood Mackenzie said. 

Gulf futures tied to Oman crude, which are less liquid but which quickly reflect local supply disruptions, shot past $166 a barrel. Oman is a benchmark for much of the oil sold by Middle East producers such as Saudi Arabia, with tankers of physical crude priced at a fixed spread to the benchmark, which floats up and down each day with the market. 

Some Saudi customers are balking at using the benchmark given its volatility, the oil officials said. Aramco, however, is insisting it is a true reflection of supply in the market, they said. 

The war has already removed millions of barrels of oil from global supply. Prices are up by around 50% since the conflict began Feb. 28. 

Modellers at Saudi Aramco need to assess the direction of the market in time to release the official selling prices for their crude by April 2. They pull in a number of inputs, including soundings on customer demand from staff who handle oil sales.  

Saudi Arabian light crude is already being sold to Asian buyers via its Red Sea port for around $125 a barrel. As extra oil in storage—some of which was shipped out of the Gulf ahead of the war—is used up, physical shortages will bite more deeply next week, causing prices to close in on $138 to $140, the officials said. 

By the second week of April, with no easing of the supply disruptions and the Strait of Hormuz remaining closed, the Saudi officials said they expected prices could hit $150 before stepping up to $165 and $180 in the weeks ahead. 

Oil traders are also putting bets on much higher prices, though many remain far lower than Aramco’s most dire scenario. Wagers that Brent futures will hit $130, $140 or $150 a barrel next month were among the most popular positions in the options market on Wednesday, according to Intercontinental Exchange data. A smaller but growing number of traders are betting prices could shoot up even further. 

“The market isn’t acting like this is an end-of-March thing any more,” said Rebecca Babin, a senior energy trader for CIBC Private Wealth, referring to an ending for the war. “I don’t think $150 is out of the question in another month…You start talking about June, I’ll give you $180.”  

Many variables could keep prices from going that high, among them an end to the fighting or freed-up barrels from sanctioned producers such as Russia contributing to global supply. Demand could also fall, which would bring prices back down but potentially only in tandem with a recession. 

Energy producers are scrambling to figure out how high prices can go before buyers start cutting back, a phenomenon called demand destruction. 

“Generally, $150 Brent is where people will really start to put their pencils down and do the math,” Babin said.  

At that price, analysts say, Americans might start taking the bus, working from home or rethinking their summer vacations. Manufacturers could slow down rather than operate uneconomically.  

The more relevant price for most consumers is at the pump. Gasoline demand tends to start declining once prices exceed $3.50 a gallon, according to James West of Melius Research. 

For many, prices are already there. Americans’ average retail prices for gasoline jumped to $3.88 a gallon Thursday, according to AAA, up from $2.93 a month ago. Drivers in Arizona, New Mexico and Colorado have faced the starkest sticker shock. 

Diesel’s even more rapid price surge, to $5.10 a gallon, is already hitting companies that rely on the fuel to move everything from produce to semiconductors to steel nationwide.  

“Higher fuel costs act like a tax on consumers and businesses, forcing households to spend more on energy and less elsewhere,” said Philip Blancato, chief executive at Ladenburg Asset Management. 

Another big risk to demand comes from industrial users curtailing consumption and from the broad economic contraction that can accompany oil shocks, according to Wood Mackenzie. 

That pullback in demand would likely initially hit energy-poor countries in Asia and Europe, where prices for jet fuel, diesel and more already are skyrocketing. 

An adviser working with Saudi Aramco said the company is weighing a scenario in which the rapidly rising cost of oil imports in Europe, Japan and Korea puts downward pressure on their currencies, raising their effective cost of energy, driving inflation and interest rates up, and eventually slowing their economies and demand. 

Analysts warn that a continued run-up in U.S. prices could eventually hit the U.S. , the world’s largest oil producer. 

Federal Reserve Chair Jerome Powell said Wednesday that persistently higher energy costs would buoy price pressures and ding growth. 

While the U.S. has become a major energy exporter in recent years, Powell said, “The net of the oil shock will still be some downward pressure on spending and employment and upward pressure on inflation.”