Oil prices have remained highly volatile since the onset of the U.S.-Iran conflict about a month ago due to uncertain supply dynamics. While prices have pulled back at times on hopes of ceasefire, they continue to trade at elevated levels due to ongoing tensions, including missile strikes and congestion in the Strait of Hormuz.

United States Brent Oil Fund LP (BNO Quick QuoteBNO - Free Report) has gained about 44.3% over the past month due to heightened geopolitical tensions but the ETF has lost about 8.3% over the past week on cues of diplomacy (as of March 25, 2026).

Oil in Backwardation: Signals Temporary Price Spike

Despite the volatility, the oil market has entered backwardation, where near-term prices are higher than those for future delivery, as quoted on CNBC.

This structure suggests that the current price surge is viewed as temporary due to immediate geopolitical risks rather than long-term supply shortages.

If markets expected prolonged supply concerns, long-dated future contracts would also trade at higher prices, not lower ones.

Market watchers believe that the current rally is being treated as an event-driven spike, with expectations that prices will ease once a resolution is reached.

Supply Risks to Last Long?

Despite expectations of a resolution, risks remain significant. Damage to energy infrastructure could take years to repair. According to Rystad Energy’s estimates, energy infrastructure repair and restoration costs to date could be at least $25 billion, based on an initial assessment of impacted facilities, and are expected to rise further.Spending is likely to be on engineering and construction, followed by equipment and materials.

In the war, Israel attacked Iran’s South Pars gas field. Later, Iran apparently targeted natural gas infrastructure in Qatar and the United Arab Emirates, as quoted on Yahoo Finance. With Qatar being the world’s third-largest gas exporter, any strike could be a massive hit to the global supply.

Per Jim Krane, a fellow in Middle East Energy Studies at Rice University’s Baker Institute, there have been direct attacks on multibillion-dollar infrastructure that’s going to take as long as five years to fix. This is likely to keep a significant portion of global liquified natural gas supplies off the market for a long time, as quoted on Yahoo Finance.

Overall, several experts warn that markets may not be fully pricing in the long-term impact of infrastructure damage. Hence, the latest trend of backwardation in the oil market is probably a sign of complacency. 

Pre-War Oil Price Less Likely to be Back?

Even as futures markets point to lower prices ahead, a risk premium remains firmly embedded, as quoted on CNBC. Indrani De, head of global investment research at FTSE Russell, told CNBC about this trend.

For instance, Brent crude for December delivery (meaning year-end/ long-dated level) is traded near $79.70 at the time of CNBC reporting. This year-end price level is about 17% below current prices, but about 10% higher than pre-war levels.

This suggests that while markets anticipate an eventual normalization, they continue to factor in the impact of the Iran war damage.

ETFs in Focus 

Against this backdrop, investors should closely track energy exploration ETFs like State Street Energy Select Sector SPDR ETF (XLE Quick QuoteXLE - Free Report) and MLP ETFs like Alerian MLP ETF (AMLP Quick QuoteAMLP - Free Report) . AMLP ETF yields as high as 7.44% annually. If the Iran conflicts end soon, these ETFs may fall but not to the pre-war level. With MLPs offering high current income, the segment can offer good buying opportunities in the present scenario.

On the other hand, extremely energy-dependent country ETFs like iShares India 50 ETF (INDY Quick QuoteINDY - Free Report) may reel under pressure for longer than expected.