Citi Sees Oil Volatility Fluctuations Until the Iran Deal is Done

Oil markets are set for continued wild swings in the coming weeks as investors grapple with uncertainty over a potential U.S.-Iran deal to end the ongoing conflict and reopen the Strait of Hormuz. Citigroup’s global head of commodities research, Max Layton, captured the mood perfectly in a May 7 Bloomberg Television interview: “It’s very difficult to predict” whether Iran will strike a deal with President Donald Trump. With new leadership in Tehran and high-stakes negotiations underway, the market is in a classic “hope-and-fear dance,” where headlines drive sharp price moves.

Citi has already hiked its near-term oil forecasts amid the disruptions. The bank now sees Brent crude averaging around $110–$120 per barrel in Q2 2026 under its base case (50% probability), assuming the Strait begins reopening by the end of May. If the blockage drags on longer, prices could spike toward $150. Longer-term, Citi projects Brent easing to $95 in Q3 and $80 in Q4 as supplies normalize.

What Happens to Oil Prices If a Deal Is Reached Soon?

Analysts widely expect a meaningful price drop if a framework agreement materializes quickly—recent reports of U.S.-Iran progress already triggered sharp sell-offs, with Brent briefly dipping below $100 and WTI under $91 before partially recovering. The geopolitical risk premium (currently estimated at $7–$30+ per barrel, depending on the source) would erode fast.

However, prices won’t collapse overnight. Multiple banks and consultancies (Goldman Sachs, JPMorgan, ClearView Energy Partners) stress that restarting Persian Gulf supplies is “not a switch you can just flip.” Even in an optimistic scenario, Stranded tankers and floating storage: Up to 140 million barrels of Iranian crude already at sea could reach markets in days to weeks if sanctions are waived (the U.S. Treasury has already issued short-term waivers for this purpose).

Production ramp-up: Shut-in wells and damaged facilities require weeks to months to restart. Partial restarts could begin in 2–3 weeks; full pre-war output might take 3–6 months.

Logistics and infrastructure: Mine-clearing in the Strait, insurance repricing, tanker rerouting, and repairs to bombed export terminals (including parts of Kharg Island) add further delays. The International Energy Agency has noted that some Gulf infrastructure damage could take up to two years to fully restore.

Bottom line from analysts: A deal would likely push Brent toward the $80–$95 range by late 2026, but near-term tightness and volatility will persist through the summer.

Aircraft Carrier Departure: A Signal the Main War Phase Is Over?

In a notable military adjustment, the U.S. Navy’s USS Gerald R. Ford—the world’s largest aircraft carrier—is departing the Middle East after a record 300+ day deployment. Multiple U.S. officials confirmed the move in late April, citing maintenance needs after extended operations supporting strikes and deterrence against Iran. While two other carriers (USS Abraham Lincoln and USS George H.W. Bush) remain in the region, the Ford’s exit has been interpreted by some as a de-escalation signal from the Trump administration.

President Trump has publicly highlighted “great progress” in Iran talks and paused certain escort operations in the Strait to test whether a deal can be finalized. The carrier rotation aligns with statements that major hostilities have wound down, potentially freeing naval assets while keeping enough presence to enforce any agreement. Markets have read this as another bullish sign for de-escalation—oil dipped further on the combined news flow.

Trump-Xi Meeting Next Week: Broader Energy and Trade Ripple Effects

Adding another layer to the macro picture, President Trump is scheduled to meet Chinese President Xi Jinping in Beijing on May 14–15. The long-delayed summit—originally postponed because of the Iran war—will cover trade, rare earths, tariffs, and almost certainly energy security. China remains a major buyer of discounted Iranian and Russian crude; any U.S. push to tighten secondary sanctions or redirect Chinese purchases toward American oil could influence global flows.

Market reaction so far: Optimism around the Iran deal has already sent oil lower and pushed gold above $4,650/oz (a classic safe-haven rotation amid easing geopolitical risk and a softer dollar). A productive Trump-Xi outcome could further stabilize energy markets by reducing trade-war fears and clarifying China’s role in absorbing any resumed Iranian supply.

Bottom Line for Energy Markets

Citi’s warning is clear: until there is concrete clarity on the Iran deal, oil will keep “moving around like crazy.” A swift agreement would bring relief to consumers and airlines, but supply recovery will be gradual—keeping prices elevated through much of 2026 compared with pre-war levels. The Ford’s departure and the upcoming Trump-Xi summit add to the sense that the acute phase of the crisis may be ending, yet the path back to normalcy remains bumpy.

Energy investors and hedgers should prepare for headline-driven volatility. Watch for updates from U.S.-Iran talks in the coming days, any formal reopening timeline for the Strait, and readouts from the Beijing summit.