Oil prices could soar 62% by early 2025 if the geopolitical situation deteriorates, Citi strategist says

• The price of oil could hit $120 a barrel by early 2025, according to Citi.
• That's according to the bank's bull case, which assumes conflict in the Middle East escalates.

Oil prices could soar more than 60% by early next year if conflict in the Middle East continues to escalate, according to Citi.

The bank said oil prices could go as high as $120 per barrel in the first quarter of 2025, implying a 62% increase. Brent crude, the international benchmark, traded around $73.48 a barrel around midday on Thursday.

The forecast is Citi's bull case for oil, which hinges on conflict in the Middle East escalating and sparking disruptions to supply. Should Israel retaliate against Iran's recent missile attack, that could jeopardize key oil production infrastructure in Iran, which could crimp production and put upwards pressure on prices, according to Eric Lee, an energy strategist at the bank.

"[T]here are a number of scenarios where this could impact a couple million barrels a day of Iran's oil production and exports, and in that case, we could be looking at something more akin to what happened to Russia-Ukraine in 2022," Lee said interview with Yahoo Finance on Wednesday, pointing to the oil-price spike shortly after Russia's invasion of Ukraine.

To be sure, the forecast for $120 a barrel marks a stark divergence from Citi's base case, which is for crude prices to stick around $74 a barrel before drifting lower to $60 a barrel later next year. Israel has also said that it would strike at military targets, rather than nuclear or oil facilities, in retaliation against Iran for its missile attack on October 1.

Citi's base case implies an 18% decline in oil prices, largely due to the possibility that Saudi Arabia, the United Arab Emirates, and other major oil producers could step in if there are supply disruptions, Lee said.

Lee estimated that OPEC+ could have around 6 million barrels a day of extra production capacity. Oil demand, meanwhile, has also faced some "issues," he said, pointing to China's weakening economy.

"This is a very tricky situation, a very binary market, if you will, and that's why again we're being tentative on the upside," he said of the bank's forecasts.

Other oil forecasters have predicted prices could soar on the back of Middle East escalations, though some say the risks of a supply disruption in Iran are small. Oil prices could fall as much as 33%, Saudi Arabia's oil minister said in a recent conference call, adding that he believed OPEC+ producers were pumping too much oil.