The sharp oil rally following the Strait of Hormuz disruption woke oil from its slumber. Spot Brent price briefly touched $141 per barrel, as energy stocks rallied, policymakers scrambled, and analysts revised price forecasts upward.
But the spike tells one part of the story – arguably the least important part. Just weeks before the crisis, Norwegian energy research firm Rystad Energy projected a different reality.
“Markets remain comfortably supplied, barring major geopolitical disruptions,” their report said. The Iran shock didn’t invalidate that outlook. It interrupted it.
The real risk isn’t that oil is suddenly too scarce. It’s that neither low-price stability nor crisis-driven price spikes are generating the kind of investment needed to sustain future supply.
Changing Prices, Not Solving Problems
Before the disruption, Rystad’s outlook pointed to persistent oversupply through 2026, with “balances… widening into the second half of the year” and sustained inventory builds.
The Hormuz disruption has dramatically altered short-term market conditions. A system that appeared to be comfortably supplied exploded almost overnight as geopolitical risk repriced the market. Yet, the long-term dynamic hasn’t disappeared; it has been temporarily overwhelmed by a geopolitical shock.
Crucially, price spikes driven by conflict do not function like normal market signals. Long-cycle oil projects, such as deepwater developments or frontier exploration, need stable, long-term expectations – typically a decade or more. A war-driven price surge, however dramatic, offers no such visibility.
Volatility tends to reinforce caution. Capital prefers short-cycle opportunities like shale, with faster returns and more manageable risks.
Top shale producers performed well through March, with Occidental Petroleum Corp. (NYSE:OXY) rising 15.7%, Chevron Corp. (NYSE:CVX) adding 8.60%, and Exxon Mobil Corp. (NYSE:XOM) gaining 6.8%.
The High Price Curse
Conventional wisdom holds that high oil prices incentivize production. Triple-digit prices should trigger a wave of new investment, but reality is different.
For a start, cost inflation rises alongside prices. Labor, equipment, and financing all become more expensive in volatile environments as project economics get more complex.
Second, investor expectations have shifted. After years of poor returns, oil majors are under pressure to prioritize dividends and buybacks over aggressive expansion.
Third, and most importantly, the nature of available resources has changed. As Rystad Energy highlights, future supply increasingly depends on complex, capital-intensive projects and even yet-to-be-discovered resources.
The report estimates that roughly $8 trillion in upstream investment will be required through 2040, as reliance on harder-to-develop reserves grows. At the same time, existing production declines at an average rate of around 17% annually, steadily eroding the supply base.
That reality creates a structural constraint that short-term price signals cannot easily resolve.
“The current phase of energy abundance is transient. It reduces immediate price pressure but discourages investment in the very supply required to sustain the system in the 2030s,” Rystad warns.
Thus, even under short-term pressure, high prices may simply shift the capital toward fast returns without addressing the deeper gap.
Image via Shutterstock
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