At the start of 2026, the prevailing narrative in oil markets was one of comfortable surplus. Supply growth — led by Brazil, Guyana and Canada — was expected to outstrip demand, while the 23 member states of OPEC+ retained meaningful spare capacity.
Inventories were building, floating storage remained elevated on the back of sanctioned Russian and Iranian barrels and demand growth was beginning to soften as China’s post-pandemic rebound faded and transport electrification gained traction. Against that backdrop, both the forward curve and sell-side forecasts pointed to a subdued year, with Brent crude widely expected to average around $60.
Fast-forward to April, and the picture has flipped dramatically. At the end of February the US and Israel began co-ordinated strikes on Iran, prompting a swift retaliation that included missiles and drones targeting Gulf states. Yet the most consequential move for markets was not kinetic but logistical: the effective disruption of the Strait of Hormuz, the world’s most critical oil chokepoint.
While there is no formal blockade, the credible threat of missile strikes, drone attacks and naval mines — combined with war-risk insurance premiums surging to uneconomic levels, or insurance disappearing altogether — has left shipowners either unwilling or unable to transit the strait, effectively paralysing flows.
In normal times, roughly 20-million barrels a day, about a fifth of global consumption, flow through Hormuz. With traffic now reduced to a fraction of that, the impact on global trade is profound. Even after accounting for partial rerouting — around 4-million incremental barrels a day via pipelines to the Red Sea and a further half a million barrels to the UAE’s Fujairah port outside the strait — the world has effectively lost access to about 16-million barrels a day of Gulf exports.
The International Energy Agency (IEA) has already described this as the largest supply disruption in the history of the oil market.
The problem is compounded by the fact that most of the world’s spare production capacity is concentrated in the Middle East. That means the system’s primary shock absorber sits in the very region now caught up in the disruption.
Two distinct risks emerge from this — price and physical availability.
The price impact is already visible. Spot Brent has surged to around $110 a barrel, reflecting the immediate loss of supply and the risk premium attached to geopolitical escalation. But the futures curve tells a more nuanced story. December 2026 Brent is trading closer to $84, suggesting that the market expects the disruption to be temporary, even if the path back to normality is uneven.
The second risk — fuel shortages — is often underappreciated. It is not just crude that is affected. Refined product exports through Hormuz have also been severely disrupted, and this has a cascading effect. Storage tanks for export-orientated refineries in the Gulf are quickly filling up. Once those tanks are full, they have no choice but to cut runs or shut down entirely. That, in turn, reduces the supply of diesel, jet fuel and gasoline to global markets.
This is where the crisis shifts from a “price shock” to a “shortage shock”. Crude inventories can, in theory, buffer a disruption for some time. But refined product markets are tighter, less fungible and more geographically constrained. Diesel and jet fuel are particularly vulnerable. The result is that shortages can emerge faster in fuel markets than in crude.
Shutting in production is not trivial. Like deep-level mines, oil wells are not taps that can be turned on and off at will
Globally, there are significant oil inventories — around 8-billion barrels by some estimates, which equate to about 75-80 days of consumption at current demand levels. But this headline number is misleading. Much of that oil is tied up in strategic reserves, pipeline systems or floating storage that cannot be immediately redirected. The effective buffer — what can actually be delivered to the right place in the right form — is far smaller.
Recent US waivers have allowed some sanctioned Russian and Iranian barrels, currently sitting in floating storage, to re-enter the market. But these 270-million barrels equate to only around 14 days’ worth of normal shipments through Hormuz.
Strategic reserves are the next line of defence. Countries such as the US, Japan and other IEA members hold emergency stockpiles and have recently authorised the release of 412-million barrels. That sounds substantial, but it equates to only about 20 days of normal flows through Hormuz, or closer to 26 days if alternative export routes via the Red Sea and Fujairah continue to operate.
Meanwhile, the disruption is creating a different kind of pressure within the Gulf itself. With exports constrained, oil is backing up into storage. As tanks fill, they are forced to reduce production. This is already happening on a large scale, with around 10-million barrels a day (roughly 10% of world production) having already been shut in.
Shutting in production is not trivial. Like deep-level mines, oil wells are not taps that can be turned on and off at will. Reducing output can be done relatively quickly, but restarting production, particularly after a full shut-in, can take weeks or months. Reservoir pressure dynamics, equipment constraints and operational complexity all come into play.
That is why Kuwait Petroleum Corporation has cautioned that a return to full production could take three to four months, even if the conflict ends immediately. And the longer the disruption persists, the more wells are taken offline, making the eventual recovery increasingly difficult.
There is also the risk of physical damage. So far, the primary disruption has been logistical rather than infrastructural. That could change. The example of Qatar’s Ras Laffan liquefied natural gas facility, where damage is expected to take three to five years to repair, highlights the potential for long-term supply losses if critical infrastructure is hit.
A further escalation risk lies in Iran’s threat to extend the disruption to the Red Sea by targeting the Bab el-Mandeb Strait, potentially via its Houthi proxies in Yemen. That waterway is a critical alternative export route, carrying roughly 5-million barrels a day. In such a scenario, the current disruption of roughly 16-million barrels a day could escalate towards 21-million.
Ultimately, whether this becomes a multiyear price shock depends on duration and damage. A short disruption — measured in weeks — can be absorbed through inventories, with current forecasts pointing to an average Brent price of around $85 for 2026. But a longer disruption, of months rather than weeks, would not only be calamitous economically in the near term, it could entrench structural tightness that lingers for years after the conflict ends.
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