Citigroup Warns: Sanctions, Tight Supplies, and U.S. Policy to Drive Oil Prices Higher

Why Higher Oil Prices Are Inevitable: Sanctions, Supply Constraints, and Policy Impacts

The global crude oil market is facing a period of sustained higher prices due to tightening supplies caused by sanctions on Russian oil exports, logistical challenges, and strategic policy decisions by major producers and governments. These forces are shaping a market environment where elevated price levels are increasingly likely to persist.

Sanctions Tighten Global Oil Supply

Recent U.S. sanctions on Russian oil producers and their shipping fleets have sharply reduced Moscow’s export capabilities. Over 180 vessels, integral to transporting Russian crude, are now restricted, leading to a shortfall in global supply. Key importers like India and China are turning to higher-priced alternatives from the Middle East and Africa to meet their needs​​.

The result has been soaring freight rates and constrained availability of tankers, with shipping costs from the Middle East to Asia climbing significantly. These logistical pressures have created a ripple effect across the oil market, pushing Brent crude prices to over $80 per barrel and supporting bullish sentiment​​.

Citigroup’s Revised Price Forecasts

Citigroup recently raised its 2025 oil price forecast, reflecting the impact of geopolitical risks on supply and pricing. The bank expects Brent crude to average $67 per barrel, but recent spot prices already exceed these estimates, fueled by robust winter demand and sanctions-driven constraints​.

While Citi anticipates some stabilization later in the year, supply risks remain a key concern, especially as U.S. policies and sanctions continue to influence the market balance. The immediate effects of sanctions and logistical bottlenecks have created a supportive backdrop for elevated oil prices in the short to medium term​​.

President Trump’s Policy Stance

President Trump’s commitment to boosting U.S. energy independence adds another layer of complexity. His administration’s focus on accelerating domestic oil production and loosening environmental regulations aims to enhance the country’s energy position. However, these measures may take time to offset global supply disruptions​​.

Trump’s recent comments on imposing further sanctions on Russia, coupled with efforts to broker peace in the Ukraine conflict, suggest continued supply pressures. His energy agenda, focused on maximizing U.S. production, provides a long-term stabilizing force but does little to alleviate the immediate constraints driving prices higher.

Outlook for Oil Prices: Bulls in Control

Current supply constraints, amplified by U.S. sanctions and geopolitical tensions, underpin a bullish perspective for crude oil prices. These market pressures, combined with robust seasonal demand for heating fuels, suggest that prices may continue to trend higher as traders factor in tightening global supplies.

Elevated prices are reflective of the impact of reduced Russian oil exports, logistical challenges, and the costs associated with adjusting global supply chains. These conditions are also fostering investments in alternative supply routes and infrastructure, signaling confidence in sustained price support.

As market participants adapt to these realities, the overall outlook for crude oil remains bullish. While specific price levels depend on further developments in supply constraints, sanctions, and demand indicators, the sentiment suggests a favorable environment for price strength moving into 2025.

More Information in our Economic Calendar.