Estimating the oil market risk premium is more art than science, but our sense is that it is currently in the region of $5-8pb. Looking ahead, were the US to conduct limited military strikes against Iran, experience suggests that a widening in the risk premium could see Brent crude jump to ~$80pb, but the premium could narrow again quickly if tensions deescalated thereafter. Were energy infrastructure to be affected by any strikes, oil prices could plausibly rise further, to ~$100pb. But in this situation, the rise in oil prices would reflect a change in the fundamentals of the oil market and so could potentially persist longer.
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