Geopolitical tensions, climate shifts, and technological disruptions are converging. Citigroup suggests that "black swan" events in the commodities market are evolving from once-in-a-decade occurrences into a near-constant reality.

On July 23rd, the Eric G Lee team at Citi Research published a report outlining potential extreme risk scenarios for the second half of 2026 and beyond. The magnitude of these potential price shocks is large enough to render traditional supply-demand analysis frameworks ineffective.

The tail-risk scenarios covered by Citi Research include: a US-Iran conflict evolving from a temporary shock into a multi-year disruption, a race to stockpile critical minerals, a 15% to 20% drop in gold followed by a doubling, extreme El Niño weather impacting agricultural products, and two-way volatility triggered by either the bursting or sustained boom of an AI bubble. Since 2020, the commodities market has experienced the COVID-19 pandemic, the Russia-Ukraine conflict, trade wars, a central bank gold-buying spree, and repeated outbreaks of Middle East conflict, with the density of extreme events reaching unprecedented levels.

The report clarifies that these risk scenarios are not baseline forecasts. Instead, they are "tail scenarios" – events that are possible and would have a massive impact if they occurred – designed to supplement Citi's existing baseline forecasting framework.

Highest Risk: US-Iran Conflict Evolving into a Multi-Year Supply Crisis

Citi ranks an escalation of the US-Iran conflict as the tail scenario with the greatest impact, although its probability of occurrence is assessed as "low."

The report notes that oil and refined product prices have already experienced multiple rounds of sharp volatility. This follows the "12-day war" in June 2025 when the US and Israel struck Iranian nuclear facilities, renewed conflict in February 2026, a fragile ceasefire agreement in June 2026, and a renewed military escalation in July 2026.

If the conflict expands further, Iran could target the energy infrastructure of Gulf oil-producing nations. Combined with a prolonged closure of the Strait of Hormuz and a disruption in the Bab el-Mandeb strait, the world could face a sustained supply gap of 5 to 10 million barrels per day.

Assuming a demand elasticity of approximately -0.05, Citi calculates that a supply loss of this magnitude would drive oil prices up by 100% to 200%, pushing the price of full-cycle crude oil above $200 per barrel. US retail gasoline prices would likely remain above $6 per gallon.

The report cites historical data, noting that when global oil inventories excluding China fell below 70 days of consumption cover, the corresponding real Brent crude oil price exceeded $150 per barrel.

(Previously, if crude oil inventories outside China fell to a 90-day low, Brent crude oil once exceeded $150 per barrel.)

To replicate the 8% peak of oil and gas spending as a share of GDP seen during the second oil crisis in the 1970s, the required oil price level would exceed $200 per barrel.

(If inventories outside China fall to late 1970s levels, oil product prices would roughly double from current levels.)

As of July 2026, total global oil inventories outside China remain at approximately 94 days of consumption. However, Citi predicts that if a global deficit of 7 to 8 million barrels per day persists, this indicator could fall below 70 days by early 2027.

Russia-Ukraine Escalation: Natural Gas Market Expected to Face Greater Impact than Oil

Citi rates the possibility of stricter restrictions on Russian energy exports as "medium probability," emphasizing that the impact on the natural gas market will be greater than on crude oil.

In terms of LNG, Russia exported approximately 44 billion cubic meters in 2025, accounting for about 7% of global LNG supply, mainly from the Yamal LNG and Sakhalin-2 projects.

(The majority of LNG from the Yamal project is exported to Europe, and Europe's share is expected to increase further in 2026.)

More than 70% of Sakhalin-2's exports go to Japan and South Korea. In mid-2026, about 90% of Yamal project exports were flowing to Europe.

(Japan and South Korea together account for approximately 70% of Sakhalin-2's LNG export share.)

If a global embargo on Russian LNG were implemented, over 30 billion cubic meters of annual supply would need to be redirected. However, due to shipping and contract limitations, the global LNG market would face a significant supply gap.

For pipeline gas, the destructive power of a ban on buying Russian pipeline gas is even greater, due to the physical constraints of pipelines making it difficult to flexibly adjust the direction of gas flow.

Russia exports over 70 billion cubic meters of pipeline gas annually to markets outside China, with Europe and Turkey alone importing approximately 37 billion cubic meters of that total.

Critical Mineral Hoarding: Copper Prices Could Break $20,000 Per Tonne

Citi rates the probability of a critical mineral stockpiling race as "high," with the impact varying by commodity and the extent of hoarding. If major governments accumulate strategic mineral inventories on a large scale, copper prices could be pushed above $20,000 per tonne.

The report points out that policy signals are already emerging from major global economies like the US and the EU.

The US "Project Vault" proposal seeks to spend $12 billion stockpiling key industrial commodities, while the EU has announced €3 billion in funding for critical mineral security.

Citi uses the copper market as an example for its calculations: if global refined copper inventories were to rise from the current level of about 1.3 months of consumption to 3 months, it would require accumulating approximately 4 million tonnes of copper over two years.

Based on historical scrap copper supply elasticity, this would require the copper price to rise to approximately $23,000 per tonne. Citi's current baseline scenario price for copper is around $13,500 per tonne.

(Theoretical copper prices under various global inventory increase scenarios.)

Gold: A Possible Further 15-20% Drop in the Short Term Before Doubling

Citi rates gold's tail risk as low probability and low immediate impact, but significant within the scenario analysis framework.

After surging from $2,500 per ounce in January 2025 to a peak of $5,500 per ounce in February 2026, the gold price has now retreated to around $4,000 per ounce.

The report believes the risk of a larger-than-expected downside is most concentrated in the next 4 to 6 weeks. If the price breaks below $3,800 per ounce, liquidation pressure on ETFs and leveraged positions could be triggered on a large scale.

Potential triggers include a worsening of the Middle East situation pushing up real interest rates and the US dollar, as well as a liquidity crunch caused by adjustments in stock and bond markets.

However, the report remains highly optimistic about gold's medium to long-term trajectory.

China's trade surplus of over $1.3 trillion, continued central bank purchases, global fiscal sustainability concerns, and the de-dollarization trend constitute multiple supports for long-term gold demand.

Citi expects gold to rise to $6,000 per ounce over the next few years, nearly double its current level, driven by a major decline in inflation and a new wave of investor buying.

Extreme El Niño: Cocoa Prices Could Return to $10,000 Per Tonne

The July update from the US National Oceanic and Atmospheric Administration (NOAA) raised the probability of a very strong El Niño event to 81%, with a 97% chance of it persisting through the spring of 2027. Citi classifies this as a "medium probability, high impact" tail scenario.

(NOAA's El Niño probability forecast for the US.)

The report notes that the impact of an extreme El Niño varies significantly across different agricultural products. Cocoa, sugar, and Robusta coffee are most affected; soybeans are less so; corn and wheat are relatively less affected.

If West Africa experiences a Harmattan wind season similar to that of 2023-2024, cocoa supplies would be severely impacted. Cocoa prices could return to $10,000 per tonne or higher, having already hit all-time highs in 2024-2025.

For sugar, below-average rainfall in India in June, combined with the dual risks of potential monsoon deficits and flooding in Thailand and Brazil, could push global sugar prices above 20 cents per pound.

Corn and soybean prices are somewhat supported by the fact that an El Niño typically boosts yields in US growing regions. European heatwaves and a weakened Indian monsoon remain the main downside risks.

AI Boom and Bust: Two-Way Shocks Create Divergent Commodity Landscape

Citi characterizes the impact of AI scenarios on commodities as "low to medium probability, highly divergent impact."

AI infrastructure expansion is becoming a significant driver of demand for electricity, natural gas, uranium, and grid metals like copper and aluminum. The report estimates that US data center electricity consumption could roughly double by 2030.

If the AI bubble bursts, data center construction would contract sharply. Actual and expected demand for copper, natural gas, and uranium would suffer simultaneously, and a decline in global risk appetite would further shrink commodity demand.

However, a weaker US dollar could provide passive support for commodity prices, and significant Fed rate cuts would also provide a degree of support to the market.

If AI productivity gains are realized, energy consumption would accelerate, and grid investment would be brought forward. The narrative of a structural deficit for copper and aluminum would be further strengthened. Citi sees this as one path to its bullish scenario of copper prices reaching $17,000 per tonne.

Gold is viewed as the most asymmetric hedging tool in AI scenarios. Whether the outcome is a boom or a bust, gold has its own logic for benefiting.

Power of Siberia 2 and LNG Glut: 2030s Prices Could Fall Below $6/MMBtu

Citi classifies the signing of a final agreement for the Power of Siberia 2 pipeline between Russia and China as a "medium probability, high impact" scenario.

The pipeline, with an annual capacity of 50 billion cubic meters, if operational around 2030, would significantly reduce China's LNG import demand. This would exacerbate an already expected easing of the global LNG market starting in 2028.

The report predicts that in this scenario, the JKM Asian LNG benchmark price could fall to $5-6 per million British thermal units (MMBtu). This is well below the current futures prices for 2029-2030, which are above $8, and far below the $7-10 breakeven range for most new LNG supply terminals.

Citi notes that the potential new supply of 50 billion cubic meters per year between China and Russia is almost equivalent to the approximately 53 billion cubic meters per year that Russia previously exported to Europe via existing pipelines. Its impact on the global LNG glut would far outweigh the debate over whether Russian pipeline gas returns to Europe.

Extreme Monroe Doctrine: Americas Oil Blockade Could Echo 1973

If the US pushes the "Monroe Doctrine" to an extreme, blocking oil exports from Latin America and potentially the entire Americas, the global oil price landscape would be severely distorted.

The Monroe Doctrine is a core US foreign policy articulated in 1823, centered on the principle that "America is for the Americans." It aims to oppose European intervention in American affairs while declaring US non-interference in European internal matters.

Citi classifies a "US blockade of all oil exports from the Americas" as a low-probability, high-impact scenario.

Under this assumption, approximately 9.8 million barrels per day of crude oil production from Latin America (including Mexico), accounting for about 10% of global total output, would be cut off from the global market. The shock could equal or even surpass the 1973 Arab oil embargo.

(US imported crude oil prices, 2026 real and nominal values, 1974-2025.)

At that time, seven OPEC member countries cut production by about 3.6 million barrels per day (roughly 6% of global output), causing oil prices to surge from about $3 per barrel to around $12 per barrel by January 1974, an increase of roughly 300%.

In this scenario, global benchmark crude oil prices (such as Brent, Dubai) could skyrocket to over $100 per barrel. Meanwhile, crude benchmarks within the Americas (such as WTI, WCS) could see deep discounts of over $30 per barrel as they would have nowhere to go, creating a dramatic cross-regional price divergence.