The reopening of the Strait of Hormuz is rewriting the script on inflation, leading a major financial institution to significantly cut its oil price forecasts, a stark reversal from earlier calls for $200 crude.

International financial powerhouse Macquarie Group has substantially lowered its benchmark price projections for international oil in 2026 and 2027. The central rationale is the firm's expectation that oil flows from the Middle East will rapidly normalize following the reopening of the Strait of Hormuz under a U.S.-Iran peace agreement framework. This development has prompted a wave of downward revisions from major Wall Street banks, including Goldman Sachs and Morgan Stanley, who are collectively stripping "war risk premiums" from their oil price assessments. Concurrently, Brent crude has retreated to around $77 per barrel, a decline driven by market bets on positive U.S.-Iran negotiations, a 60-day sanctions waiver, and the resumption of energy flows through the Strait.

The downward pressure on oil price forecasts, fueled by the optimistic prospect of the strait's reopening, coupled with U.S. gasoline prices dipping below $4 per gallon for the first time since March, offers welcome relief for American consumers. This comes after months of soaring fuel costs triggered by an unprecedented global energy supply disruption from a new round of Middle East geopolitical conflict, which had fueled energy-driven inflation pressures this year.

The Federal Reserve's June FOMC meeting, as expected, maintained a hawkish tone, holding the benchmark policy rate at 3.50%-3.75%. The majority of Fed officials' submitted projections still indicated potential rate hikes in 2026, and the core PCE forecast was revised upward to 3.3%. For the Fed, lower gasoline prices and declining crude oil price expectations help weaken the case for a hawkish policy path but are insufficient alone to confirm a dovish pivot. This is primarily because energy prices chiefly influence headline CPI inflation, future inflation expectations, and consumer gasoline spending, whereas the Fed also places significant weight on core PCE, wages, services inflation, and financial conditions.

Macquarie Bets on Swift Normalization, Oil Bulls Face Repricing

Following a provisional U.S.-Iran peace accord, enabling oil and gas to once again be shipped en masse from the Persian Gulf, strategists at Macquarie now forecast the international benchmark Brent crude will average $77 per barrel in 2026. This is markedly lower than their previous forecast of $89 and far below extreme-scenario projections of $200 made during the U.S.-Iran conflict. The firm also cut its 2027 Brent average price outlook from $74 to $64 per barrel.

In a research note released Tuesday, Macquarie strategists, including Peter Taylor and Vikas Dwivedi, wrote that while numerous obstacles could hinder a rapid return to pre-war normalization in Middle Eastern oil production and trade flows, regional producers' overall adjustment speed may outpace general market expectations. "The market is materially underestimating the pace of energy trade recovery and the oil market's ability to self-heal," the strategists stated. "The region's expertise in oil production, available tank storage and shipping capacity, and advances in field rotation science are expected to enable a supply recovery significantly faster than the market currently anticipates."

The strategists noted that pre-war markets were already in a state of significant oil oversupply. The demand destruction caused by high prices following the late-February geopolitical conflict, alongside "potential, less-transparent inventory draws," helped offset the ongoing supply losses. These factors, according to Macquarie, have kept crude prices at relatively low levels despite a historic shock. The research suggests crude trading is expected to see sharp volatility in the coming months: prices could experience short-term spikes due to continued shipowner caution in transiting the region, followed by significant declines again.

From a longer-term perspective, Macquarie's strategists indicated that efforts to rebuild commercial and strategic inventories will provide some price support, meaning oil may find a stabilization range after a period of downward trajectory.

From War Premium to Peace Discount: Wall Street Cuts Forecasts

The prevailing theme among Wall Street giants like Goldman Sachs and Morgan Stanley regarding commodity markets has been the removal of "war risk premiums" from oil price expectations, leading to a consensus towards lowering international oil price forecasts. Goldman Sachs reduced its Q4 2024 Brent forecast from $90 to $80 per barrel and cut its 2027 average price forecast from $80 to $75. Morgan Stanley also lowered some of its Brent projections, reflecting a core market assumption that tail risks from supply shocks have notably diminished. This assumption is based on positive progress in a provisional U.S.-Iran ceasefire, gradual restoration of Hormuz shipping, and Iran gaining phased export channels following a temporary suspension of some U.S. sanctions.

Morgan Stanley expects damaged Middle Eastern oil and gas production to recover 50% by September, 80% by December, and be nearly fully restored by early 2027. According to another Wall Street titan, JPMorgan Chase, the most critical shift in crude market pricing is the market switching back from "blockade shock pricing" to "supply recovery and inventory rebalancing pricing."

However, the resumption of oil and gas supply through the Strait of Hormuz does not imply a straight-line decline for oil prices. Macquarie's logic of the "market underestimating the oil market's self-healing capacity" posits that Middle Eastern producers possess capabilities in production recovery, tank scheduling, field rotation, and inventory release. Nonetheless, frictional factors like shipping insurance, mine clearance, port congestion, floating storage release, and buyer compliance concerns will create periodic disruptions. Reports indicate that while limited navigation through the Strait of Hormuz has resumed, damage to energy infrastructure and congestion continue to constrain a full recovery. Even with the temporary suspension of some U.S. sanctions, Asian refiners' uptake of Iranian oil remains constrained by inventory, compliance, and payment issues.

Therefore, the essence of the downward price revisions is not a "demand-collapse bearish view" but rather the squeezing out of geopolitical risk premiums, returning oil prices to a framework dominated by inventories, shipping capacity, demand elasticity, and OPEC+ response functions.

For hawkish Federal Reserve monetary policy expectations and the recent market focus on inflation trades, this development may have a weakening effect, but it is still insufficient to directly confirm a dovish pivot by the Fed. The primary reason remains that energy prices mainly impact headline CPI inflation, future inflation expectations, and consumer gasoline spending, whereas the Fed also prioritizes core PCE, wages, services inflation, and financial conditions. If oil prices stabilize consistently below $80 or decline further, it would reduce the risk of "energy-driven secondary inflation – unanchored inflation expectations – forced rate hikes." This could shift market expectations for the Fed's policy path from "re-inflation and hike trades" towards "a wait-and-see stance or even repricing rate cut windows." However, triggering an actual dovish policy turn by the Fed would require simultaneous cooling in core PCE, employment, and services inflation. In other words, declining oil prices are a necessary catalyst for a Fed shift from hawkish to dovish, but not a sufficient condition on their own.