By MONEYCONTROL WORLD DESK
Internal projections in Gulf’s biggest producer flag extreme price risks even as Riyadh worries about demand destruction and recession
Saudi Arabia’s oil officials are working on internal projections that show crude prices could surge past $180 per barrel if the ongoing Iran conflict and related supply disruptions continue until late April, according to a report by the Wall Street Journal.
The projection is being treated as a base-case scenario by several officials in the Gulf’s largest oil producer, reflecting growing concern that the current energy shock may not be short-lived.
Supply shocks deepen as conflict hits key infrastructure
The price outlook is being shaped by a series of attacks on energy infrastructure across the region.
According to the Wall Street Journal, Iran retaliated after an Israeli strike on its South Pars gas field by targeting Qatar’s Ras Laffan energy hub and other Gulf infrastructure, including Saudi facilities at Yanbu
The Yanbu terminal is significant as it connects to a pipeline designed to bypass the Strait of Hormuz, a critical chokepoint through which roughly one-fifth of global oil supply flows.
Disruptions in and around the Strait have tightened supply flows and raised concerns over sustained availability of crude in global markets.
Prices already up sharply since conflict escalation
Oil prices have already surged in response to the conflict.
The Wall Street Journal reported that crude has risen about 50% since late February, when tensions escalated. Brent crude has traded around $115–$120 per barrel, while regional benchmarks such as Oman crude have spiked significantly higher.
The report notes that markets are increasingly treating the disruption as prolonged rather than temporary.
Saudi modelling outlines step-by-step escalation
Saudi officials have outlined a phased price trajectory if disruptions persist:
- Near term: $130–$140 per barrel
- Early April: around $150
- Further escalation: $160–$165
- Late April scenario: $180+ per barrel
These projections reflect internal modelling of how supply constraints and market reactions could unfold over the coming weeks, the report said.
Aramco faces key pricing decision by April 2
Saudi Aramco, the state-owned oil giant, is set to finalise its official selling prices (OSPs) by April 2, a decision that will signal how Riyadh balances higher revenues with demand stability.
The company declined to comment, according to the Wall Street Journal.
The report noted that Saudi crude shipments are already being sold at elevated prices, and as stored inventories are drawn down, physical supply tightness could intensify further.
Traders begin pricing in extreme scenarios
Market positioning is also shifting.
The Wall Street Journal reported strong activity in options markets around $130–$150 price levels, with traders increasingly discussing scenarios where oil could reach $180 or even $200 in more extreme cases.
Some market participants now view $150 oil within weeks as plausible, with higher levels dependent on how long disruptions persist.
Saudi Arabia wary of demand and recession risks
Despite the prospect of higher revenues, Saudi officials are concerned about the broader economic impact of a sharp price spike.
“Saudi Arabia generally does not like too-rapid increases in oil, because that then creates long-term market instability,” Umer Karim, an analyst at the King Faisal Center for Research and Islamic Studies, told the Wall Street Journal.
He added that the kingdom prefers “a relatively modest increase in prices while their market share remains stable.”
The report said prices at $150 or higher could push consumers to cut oil usage, including reduced travel and fuel consumption, potentially creating lasting demand destruction.
Economic impact already visible in fuel markets
Higher crude prices are already feeding into consumer fuel costs.
The Wall Street Journal reported that US gasoline prices have risen to around $3.80 per gallon from below $3 a month earlier, while diesel prices have climbed above $5 per gallon.
Rising fuel costs are acting as a drag on household spending and increasing costs for businesses, particularly in logistics and manufacturing.
Inflation and global growth risks mount
The report highlighted broader macroeconomic risks tied to sustained high oil prices.
These include:
- Rising global inflation
- Pressure on central banks to keep interest rates elevated
- Slower economic growth across major economies
- The US Federal Reserve, the report noted, views oil shocks as both inflationary and negative for growth.
Risks to Saudi positioning in global markets
Saudi Arabia is also concerned about the political and market perception of rising prices.
According to the report, a sharp spike could cast the kingdom as benefiting from a war-driven supply shock, even though it is not a direct participant in the conflict.
What could prevent $180 oil
The report noted that prices may not reach projected levels if conditions change.
Potential factors include:
- De-escalation of the Iran conflict
- Restoration of disrupted supply flows
- Increased output from other producers
- Demand slowdown triggered by high prices
Saudi Arabia’s internal modelling signals that oil markets are entering a phase where extreme price scenarios are being treated as plausible outcomes.
The key variable remains the duration of the current disruption, with late April emerging as a critical threshold for whether prices move towards the $180 mark.