Middle east Economy: Lower crude expectations contrast with stronger precious metals outlook amid easing geopolitical risk

Citi has lowered its average Brent crude forecasts for 2026, adjusting expectations as markets reassess the geopolitical risk premium tied to the Strait of Hormuz and the evolving U.S.-Iran peace process. The revision reflects a growing assumption that oil flows through the key shipping route could gradually normalize following the approval of a memorandum of understanding aimed at ending the war in the Middle East. 

The investment bank cut its average Brent crude forecasts to $75 and $70 per barrel for the third and fourth quarters of 2026, respectively, citing expectations that Strait of Hormuz trade flows will resume and normalize. 

The bank also lowered its 2027 Brent forecast to $65 per barrel from $80 previously, effectively shifting its outlook toward what had earlier been its bear-case scenario, according to a note reported by Reuters. The adjustment highlights how quickly geopolitical developments can reshape long-term commodity pricing assumptions.

Citi said its new base case, assigned a 60 percent probability, assumes the MoU is signed and negotiations ultimately secure sustained flows through the Strait of Hormuz at largely normalized rates by mid-to-late July. U.S. President Donald Trump said on Monday that the memorandum had been signed by the U.S. and Iran.

“In our view, the market is pricing the MoU itself, but not an agreement that secures SoH flows over the medium term; otherwise, crude oil prices would likely be around $10–15 per barrel lower than they are today,” said analysts at the bank.

The brokerage added that limited U.S. appetite for renewed conflict and Iran’s willingness to engage support a strategy of selling summer oil rallies, suggesting that upside in crude may be increasingly constrained if diplomatic progress continues.

 Metals outlook

In the same note, Citi also adjusted its outlook for precious metals, reflecting shifting risk sentiment across global markets.

The bank raised its 0–3 month gold price forecast to $4,500 per ounce from $4,000, and its silver price forecast to $70 per ounce from $60, citing expectations that broader risk sentiment is likely to improve even as uncertainty remains elevated in the short term.

Citi maintained a bullish 6–12 month gold view at $5,000 per ounce, while warning of significant volatility ahead as markets react to ongoing geopolitical developments, interest rate expectations, and currency movements.

At the same time, the bank recommended buying the dip in aluminium, despite a selloff following the U.S.-Iran MoU news, signaling confidence in longer-term industrial demand trends even amid near-term market fluctuations.