Oil prices will rise more than previously expected in the second half of 2018, as the Trump administration aims to wipe out Iranian crude exports by November, Morgan Stanley forecasts.

The tougher-than-anticipated U.S. policy means Iran's production could fall by 1.1 million barrels per day (bpd) at a time of high oil demand. The bank also sees output declining more than it previously forecast in Libya and Angola, leaving the oil market undersupplied by about 600,000 bpd in the second half.

As a result, Morgan Stanley said it now believes international benchmark Brent crude will average $85 a barrel over the next six months. That's $7.50 higher than its previous estimate.

Brent is trading around $78 a barrel, just off its 3½-year high of $80.50 from May. The contract rose 5 percent last week, when a senior State Department official told reporters the administration is pushing oil buyers to cut off all crude purchases from Iran by Nov. 4.

Brent crude 1-year performance

Morgan Stanley said it previously thought Iranian output would start to decline after November, the end of a 180-period the Trump administration set for winding down business ties with Iran when it restored sanctions on the country in May. In that scenario, the bank saw Iran losing 700,000 bpd through 2019.

Now, Morgan Stanley said it thinks Iran's oil exports to Europe, Japan and South Korea — which account for about 1 million bpd of its 2.7 million bpd of shipments — will "fall to minimal levels."

"Over the course of last week, downside risk to future Iranian oil supply has increased rapidly," said Martijn Rats, global oil strategist and head of the bank's European oil and gas equity research.

Morgan Stanley acknowledges that Saudi Arabia is currently raising output and will likely produce an average 10.8 million bpd in the second half, up from its prior expectation of 10.1 million bpd. It also expects Russia, the United Arab Emirates and Kuwait to pump more oil, but says that will not be enough to balance the market.

"This is occurring after inventories have declined substantially: expressed in days-of demand-cover, global stocks are close to five-year lows already. Spare capacity was already thin but is now set to decline even further," according to Rats.

"All the while, demand has remained robust and is set to accelerate seasonally in" the second half of 2018, he said.