The global oil market faces renewed volatility as hostilities between the United States and Iran escalate, threatening the stability of the Strait of Hormuz—a vital maritime chokepoint through which one-fifth of the world’s daily crude consumption passes. While emergency stockpiles and reduced Chinese demand previously cushioned the market, analysts warn that these buffers are largely exhausted, leaving global energy security increasingly vulnerable to prolonged conflict.
Strait of Hormuz Disruptions and Global Supply Risks
Before the February 28 outbreak of hostilities, approximately 20 million barrels of crude and oil products traversed the Strait of Hormuz each day. The subsequent blockade and military engagements have forced a significant contraction in supply. According to the International Energy Agency (IEA), Executive Director Fatih Birol has described the current situation as the “worst energy disruption in history,” noting that the risk to oil security remains critical if conditions do not improve in the coming weeks.
Did you know?
The Strait of Hormuz is a narrow waterway between Oman and Iran. Because it is the only sea passage for much of the world’s oil exports from the Persian Gulf, any closure—or even the threat of one—immediately impacts global Brent futures.
Why Previous Market Buffers Are Failing
Market observers initially expected the oil price shock to be short-lived, as prices retreated in July following an interim peace agreement. However, the resumption of US strikes on Iranian military sites and Iranian retaliation against shipping has changed the calculus. The International Monetary Fund (IMF) reported on July 15 that while an initial oversupply of two million barrels per day helped early on, that room has now been “used up.”
Vandana Hari, CEO of Vanda Insights, notes that the IEA’s release of 400 million barrels was designed for short-term shocks, not a conflict lasting six to eight months. Furthermore, the US Strategic Petroleum Reserve (SPR) is nearing 300 million barrels, which is considered an optional minimum and represents a 43-year low.
The China Factor and Demand Shifts
China’s role as the world’s largest crude importer has been a primary stabilizer in recent months. In June, Chinese imports hit a near-decade low of approximately seven million barrels per day, down from 11.6 million in 2025. Analysts attribute this to increased electric vehicle adoption, the use of coal for chemical production, and the drawing down of massive domestic stockpiles.
However, uncertainty remains regarding whether China will begin to replenish its reserves. Bob McNally, president of Rapidan Energy, warns that markets are “too complacent” about a smooth normalization of flow. If China returns to the market to buy for its SPR and export refineries, the resulting increase in demand could push prices higher, potentially toward the US$100-per-barrel threshold predicted by some analysts.
How Asian Economies Are Adapting
While the IEA warns that Asia is the most vulnerable region—relying on the Strait for 80 to 90 percent of its energy—several nations have actively diversified their supply chains to avoid a full-blown crisis:
- India: Reshaped its energy security by increasing spot-market purchases and expanding imports from Russia, the US, and West Africa.
- South Korea: Leveraged its massive refining capacity of 3.2 million barrels per day and expanded its reliance on nuclear power to lower demand for fossil fuels.
- Australia: Maintained fuel supplies through a “ruthlessly adaptable” refining network, proving that the threat to refined products was more manageable than initially feared.
- Indonesia: Increased domestic production and directed local output toward national refineries to mitigate the impact of global supply tightening.
Pro Tip:
For countries with limited domestic refining capacity, such as Cambodia or the Philippines, the risk remains higher because they must import finished petroleum products rather than crude oil, making them more susceptible to price spikes in the refined market.
Frequently Asked Questions
Why hasn’t the price of oil reached US$100 a barrel yet?
Prices have been held in check by a combination of reduced demand from China, the release of emergency reserves by the IEA and the US, and increased production from non-Gulf countries like the United States. However, these buffers are now significantly depleted.
What are “shuttle runs” and why are they risky?
Shuttle runs involve using smaller vessels to transport oil from Gulf terminals to ports just outside the Strait of Hormuz to bypass the blockade. These have become increasingly dangerous as Iran has begun targeting ships performing these transfers.
Is the risk of an oil shock over?
No. While analysts like Norbert Rucker of Julius Baer see a low probability of total re-escalation, others—including Noel Leyco of Credit Rating and Investors Services Philippines—warn that the situation is fluid and that the risk of higher prices persists as long as hostilities continue in the Persian Gulf.
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