Oil at $130 by 2027? Wall Street Prices In Peace, Not War

By Grace Kim

Brent crude is on track for its largest one-week decline in more than six years — and BNY's chief investment officer for wealth management thinks that's exactly the problem. Alicia Levine told MarketWatch in London that markets have priced in a quick end to the Iran war, and that a prolonged conflict is the real "black swan" investors aren't hedging for.

"I think everybody thinks the Iran war is going to be over," Levine said. "Because otherwise it would be worse."

Oil has traded above $100 a barrel fairly consistently for the past two months, staying elevated since the U.S. and Israel launched strikes against Iran at the end of February. But after Democrats took control of both the Senate and the House in the U.S. midterm elections, prices have waned on bets that a Democrat-led Congress will push the conflict toward a settlement.

The fighting has stalled, but peace hasn't arrived. Tehran is waiting for Washington's response to its plan to reopen the Strait of Hormuz, which would also include resuming talks on Iran's nuclear program. As recently as Monday, the U.S. struck Iran's Qeshm Island in the key waterway after Iran's Islamic Revolutionary Guard Corps fired at an American fighter jet.

What do the oil curves show?

For Levine, the market's complacency is visible in the futures curve. Brent's longer-dated contracts have continued to gradually fall below the front-month contract. April's contract slid to $88.42 a barrel, and contracts from July onward fell below $84.

"I think that that's sort of your black swan," Levine said, referring to the possibility of the war dragging on for a long time.

Goldman Sachs shares the concern. Earlier this week, analysts led by Daan Struyven, the bank's head of oil research, raised their oil-price forecast. Their scenario: if Persian Gulf output stays 3.5 million barrels a day below its 2025 average — driven by increased shipping attacks and lasting damage to refineries — Brent crude could average $130 a barrel in 2027.

Could the war force more rate hikes?

Bank of England governor Andrew Bailey said separately that more interest-rate hikes may be coming beyond Thursday's increase — the first in three years — unless there's progress toward settling the Middle East conflict. The central bank's "adverse" scenario assumes oil prices roughly 30% higher on average and natural gas a little over 50% higher.

Levine said many of BNY's wealth-management clients are already hedging portfolios with energy exposure, including commodities. But she draws the line at selling U.S. Treasurys, even with the federal deficit having reached $1.99 trillion in fiscal 2026.

"If there's any growth scare at all, bonds are going to work as a ballast, as they always have," Levine said. "We think yields are just structurally higher, [that] we have a higher-growth world."

BNY expects U.S. growth of close to 3% this year, softening to around 2% next year, reflecting the consequences of the Iran conflict and a likely two additional Federal Reserve rate hikes before the end of 2027.

What happens to tech stocks?

Levine doesn't expect the anticipated rate hikes to hurt technology names. "These companies can still borrow to fund the AI buildout," she said. "An extra 50 basis points is not going to matter to their ability to borrow in the investment-grade market."

For tech, the real question is not borrowing costs but proof of monetization for investors — and Levine doesn't see investors abandoning the asset class.

U.S. stock-market futures were mixed on Thursday, a day after the Dow Jones Industrial Average posted its best day in 18 months. The gap between a $88 April contract and a possible $130 Goldman scenario is the trade investors now have to price.