Treasury Secretary Bessent has floated a starkly contrarian outlook for crude markets once the Iran conflict concludes, suggesting prices could collapse to $40 per barrel and pull benchmark bond yields down from multi-year highs. Speaking in an interview on Friday, he pointed to what he described as a historic correlation between current oil price gains and rising yields, a dynamic he expects to reverse as tensions ease. He stated that when the Iran situation is resolved, the recent surges in interest rates and overall inflation will subside.

Bessent argues that the oil market will be "badly oversupplied" after the Iran conflict ends, with crude prices potentially falling to between $50 and $40 per barrel. Adding to the shifting landscape, Norway's sovereign wealth fund, one of the world's largest, has proposed trimming its holdings of government bonds. According to Bloomberg analysis, such a move could reduce its U.S. Treasury portfolio by roughly $75 billion.

Oil Forecast: Post-Conflict Supply Glut to Dominate

In his interview, Bessent predicted that the global oil market will face a severe supply surplus once the Iran conflict concludes, leaving significant room for prices to drop. He noted that ample supply is expected to emerge as new barrels come online, potentially driving oil to $50 or even $40. However, he offered no specific timeline for the end of the conflict, and Republican lawmakers this week described the military situation as a "stalemate" before the House Armed Services Committee, with no clear signs of near-term de-escalation. On Friday, Brent crude traded above $95 per barrel, its highest level since July, with WTI near $91, both boosted by this week's U.S.-Iran military strikes.

Bessent also directly attributed the recent climb in bond yields to rising energy prices, asserting that the current linkage between the two is at an all-time high. He elaborated that the correlation between interest rates and oil prices has never been stronger. In his framework, once the Iran situation calms and oil prices retreat, inflation pressures will ease, prompting bond yields to move lower as well.

Norway's Sovereign Fund: Treasury Reduction Proposal Seen as Limited

Regarding the Norwegian sovereign wealth fund's proposal to cut its U.S. Treasury holdings, Bessent remained unfazed, noting that the fund is simply seeking higher returns through other American assets. He expressed strong support if the fund were to shift into bonds issued by Freddie Mac, Fannie Mae, and Ginnie Mae, saying he would be their biggest champion. Fannie Mae and Freddie Mac are the two U.S. government-sponsored housing finance giants, while Ginnie Mae is a federal housing finance agency; their bonds typically offer a premium over Treasuries. According to Bloomberg's analysis, implementing the proposal could translate to a reduction of about $75 billion in its U.S. Treasury holdings.