Oil Markets Mask a Deeper Crisis as the Strait of Hormuz Chokes

Brent crude trading in the mid-$70s suggests a bizarre calm, sitting roughly 6% above levels seen before the US and Israel struck Iran in late February, and far below the near-$120 peaks reached in March. The US benchmark, WTI, is lower still at about $72. Yet this apparent price stability is less a sign of market strength than a symptom of rapid demand destruction. Traffic through the Strait of Hormuz has collapsed, taking with it the basic assumption that global crude can keep flowing unimpeded. On Wednesday, shipping data from Kpler showed just 13 tankers moving through the waterway, down from an average of 33 a day the previous week.

This disruption provides the stark backdrop for the International Energy Agency’s latest forecast. The agency expects global oil demand to fall by one million barrels a day in 2026, which would mark the first annual decline since 2020. Comparing this to the pandemic flatters the present crisis slightly: back then, demand fell by roughly eight million barrels a day as lockdowns shut factories and grounded aviation. Today, the damage is heavily concentrated by product and region. The sharpest losses are hitting import-dependent Asian economies and petrochemical feedstocks such as naphtha and liquefied petroleum gas, which rely heavily on transit through Hormuz.

The geopolitical reality driving this contraction is deteriorating rapidly. The IEA had based its projections on the assumption that a recent ceasefire would hold and the Strait would gradually reopen. That scenario now looks entirely disconnected from events on the ground. After Iranian forces struck three commercial vessels on Monday and Tuesday, US Central Command hit more than 80 targets across Iran, including air defences, coastal radar and over 60 Revolutionary Guard small boats. Washington simultaneously revoked the licence permitting Iranian oil exports. Iran fired drones and missiles at Bahrain and Kuwait, causing no major damage, and US President Donald Trump has since declared the ceasefire over. Tehran insists that safe passage through the waterway happens strictly on its terms, leaving energy flows hostage to an increasingly volatile standoff.

Against this backdrop, June’s supply improvements look more like a statistical blip than a recovery. Global production rose by 4.1 million barrels a day to 98.8 million as the Strait partially reopened and Gulf producers restarted shut-in wells. Gulf exports, including cargoes rerouted around the strait, climbed by 6.5 million barrels a day to 16.1 million. However, this remains a fraction of the 24 million barrels a day the region shipped before the fighting began in late February. Global inventories grew for the first time since the strikes on Iran began, ending months of record drawdowns, though stockpiles in the richest economies continued to shrink as buyers hesitated to import amid the chaos.

Written by Freya Stensrud freya.stensrud@alpineweekly.com