Tag: Crude Oil

The peace accord between the United States and Iran which was remotely signed on June 17^th, 2026, has now completely collapsed with both protagonists increasing hostilities, and the Strait of Hormuz is once again closed to all traffic. The US has also blockaded Iranian oil exports, having a negative effect on oil prices with the benchmark brent crude now trading at $84.20 – $85.20p/bl (per barrel), an increase of circa 18% – 20%, and WTI (West Texan Intermediate) trading at circa $80.34p/bl, an increase of circa 13% – 15%.

Iranian officials have subsequently announced that “Regional energy exports are either shared by all or denied by all”. Furthermore, experts in this arena have observed that the IRGC (Islamic Revolutionary Guards Corps) may well employ their Houthi partners/allies located in Yemen to close the Bab el-Mandeb gateway* to the Red Sea, putting that energy artery at risk as well as the currently shut Strait of Hormuz. The US military may well find themselves to be soon fighting on two fronts. 

*Bab el-Mandeb gateway – Often translated from Arabic as the “Gate of Tears” or the “Gate of Grief”, possibly an apt description considering the current state of affairs in the Middle East. It is located between the Horn of Africa and the Arabian Peninsula, and is one of the world’s most critical maritime chokepoints. Historically, the gateway has handled circa 10% – 12% of all global trade and acts as a primary artery for energy transportation between Asia, the Middle East and Europe. Analysts advise that millions of barrels of petroleum products transit the gateway daily and its closure will have a direct effect on the global economy.

Analysts have noted that once the peace was signed, exports from the Persian Gulf recovered to just over 80% of pre-conflict levels, (Iranian crude exports were estimated in the region of 1.5 million – 2 million bpd – barrels per day), but last week, it had declined to under 50% or approx 11 million bpd. Furthermore, analysts noted that if the Strait of Hormuz remains closed, benchmark brent crude could be above the $110pbl come Q4 this year, and could be even higher if Houthi’s are successful in disrupting shipping in the Bab el-Mandeb gateway.

Experts suggest that once again, global inflation will be negatively impacted leading to further rises in the cost of living including fuels at the pumps, foodstuffs and airline prices. Indeed, once the Strait of Hormuz reopened data shows that oil prices plunged leading to an easing of inflation in such countries as the United States, China, Germany, France, Italy and Brazil. What happens next is dependent on the two protagonists, but it seems that neither side is prepared to budge with Iran not prepared to give up their nuclear programme including their uranium enrichment— which is a key component of nuclear weapons.

Experts suggest that there is no way Iran will allow a free passage through the Strait of Hormuz and will accordingly charge tariffs. Iran currently holds the upper-hand in the Strait, and some independent military experts are saying that short of the United States conducting an all-out war with Iran, this stalemate will continue until President Trump declares victory. Experts note that even if he secures a victory, it is likely to be pyrrhic—a win achieved at such a high cost that it ultimately feels like a defeat. Analysts argue that regardless of how events unfold between now and November, the fallout will likely cost him the mid-term elections, with some news outlets already labeling the conflict ‘Trump’s Vietnam’.

Earlier in the year a number of energy commentators were hinting at a potential price of $200 and above for a barrel of oil if the USA/Iran/Israel conflict continued into June. However, it’s the second week of June and Brent Crude is sitting at $90.54 p/bl, and WTI (West Texas Intermediate) is currently sitting at $93.09 p/bl. The price of crude oil has largely been suppressed to below the $100 – $120 mark despite the Middle East crisis, which has shut the Strait of Hormuz where circa 20 million barrels of oil flow daily — being roughly 20% of global demand.

The conflict started on February 28^th, just over three months ago, so why has the global economic catastrophe predicted by a number of traders, oil executives, analysts and experts not appeared in the form of $200 plus per barrel of oil? Analysts advise that the economic shock from the closure of the Strait of Hormuz has to some extent been nullified by a drop in demand by China, record exports from the United States, a trickle of oil export sneaking through the strait, the Saudi Arabian pipeline*, to the Red Sea and a pre-war surplus. 

Saudi Arabian pipeline – This pipeline is known as the Petroline and stretches for 746 miles from the Abqaiq oil fields in the eastern province (close to Bahrain and Qatar on the Persian Gulf coast) to the port city Yanbu on the west coast by the Red Sea. The pipeline was built during the 1980’s allowing Saudi Arabian oil exports to bypass the tanker war in the Persian Gulf, which was a result of the war between Iran and Iraq. The pipeline serves as a strategic and critical lifeline not only to Saudi Arabia but to the global economy and is currently pumping 7 million barrels a day, which is the pipeline’s maximum capacity. 

One of the big surprises has been China, who up until 28^th February were the world’s largest importer of crude oil, and according to data released, the government has slashed oil imports by circa 40%. Analysts have estimated that the reduction in oil imports by China is offsetting roughly 1/3 – 1/5 of the barrels that have been lost due to the US/Iran/Israel conflict. To compensate for cuts in crude imports, China’s refineries are processing oil from strategic and commercial stockpiles which analysts estimate to be around 1.4 billion barrels. Furthermore, the country is relying on increased domestic shale oil extraction and forcing petrochemical plants to deplete their own reserves. 

The United States has also proved pivotal in keeping the price of crude oil down, as May figures show that American crude and fuel exports were in excess of 2 million barrels per day, higher than the average for the whole of 2025. Indeed, U.S. crude oil exports reached a record high of 5.6 million bpd (barrels per day), whilst combined exports of crude and refined petroleum products/ fuel hit circa 9 – 10 million bpd. Elsewhere, governments from around the world have coordinated the release of strategic reserves, Qatar it is suggested is using “Dark Fleet”* operations and other Persian Gulf exporters e.g., the UAE, are rerouting shipments through alternative export routes. 

*The Dark Fleet – Is a large clandestine network of aging oil tankers, shell companies and maritime service providers that operate outside international regulations to transport sanctioned oil primarily from Iran, Russia and until recently Venezuela and now allegedly Qatar. Experts and analysts estimate the fleet to be roughly in the region of 1,470 tankers that use deceptive practices such as disabled tracking systems, forged documentation and ship-to-ship transfers in open waters that enable them to bypass international sanctions.

Despite recent rhetoric emanating from the White House suggesting talks with Iran are on-going and peace is in sight, today, any compromise deal let alone peace seems to be miles apart, with Iran’s weaponised plutonium being at the heart of any negotiations. Many experts are saying that the current global strategy of keeping oil prices suppressed is unsustainable, and if China comes back into the market, prices will only move higher. A speedy end to the conflict will certainly help as this would allow for the reopening of the Strait of Hormuz, however, some analysts note that if the war is still blazing in September, perhaps $200 p/bl could well become a reality by the end of 2026 or early 2027. 

Headquartered in Paris, France, the IEA (International Energy Agency) has recently declared that the current Middle East Crisis is responsible for the creation of what will most likely be the largest supply disruption the global oil market has ever encountered. The closing of the Strait of Hormuz is eroding the current oil surplus, and it is forcing energy producers and exporters within the Persian Gulf to cut output. 

Officials from the IEA have estimated that the current US/Iran/Israel conflict will cut global oil supply by 8 Million/bls a day this month, and they went on to confirm that overall exports of crude oil and other products through the Strait of Hormuz are already down by circa 90%. Original predictions by the IEA for 2026 was for a record oil glut/surplus, these have now been dramatically reduced. As of Wednesday last week, the IEA announced that members (32 OECD* nations) had approved to let go 400 Million/bls from emergency reserves.

*OECD – Based in Paris, France the Organisation for Economic Co-operation and Development is an international forum of 38, mostly industrialised countries that promote policies to improve economic and social well-being worldwide. Founded in 1961, it acts as a knowledge-based organisation developing standards and research to improve trade, financial stability and public policy.

Despite output losses from the Persian gulf being slightly set off by increased production from non-OPEC (Organisation of Petroleum Exporting Countries), the IEA has said that the effects of the closure of the Strait of Hormuz will be felt well beyond the time that the Strait is reopened. Sadly, consumers in many countries around the world will be forced to endure for many months, maybe years, higher prices for food, petrol and diesel, airline flights, restaurants and many other day-to-day  purchases.

Current Impact on Consumers

As a result of the United States/Israel/Iran war the world is now reeling from a global energy shock with prices of gas, electricity and fuel at the petrol pumps all hitting the consumer where it hurts, in the pocket! In the United Kingdom, diesel prices at the pumps before the war started were circa 134p per litre, whereas today they are circa 185p per litre and rising. On the intercity motorway’s, diesel is being offered in some cases at even 200p per litre. In the EU (European Union), commentators advise that Brussels are drawing up plans for potential rationing of jet fuel and/or diesel with officials stressing that these are just emergency plans. 

Lessons from the 1973 Embargo

The oil crisis back in the early 70’s was fundamentally different to the crisis the world is facing today, but the potential outcome of today’s crisis is essentially the same: It could trigger a global financial and economic crisis. The crisis began in 1973 when OAPEC*  members imposed an oil embargo on the United States and other nations who were supporting Israel in the Yom Kippur War. The result was the quadrupling of oil prices, severe shortages and rationing that consumed the countries involved. When the embargo was lifted in March 1974, there were economic recessions, massive inflation and major and lasting shifts in global energy policy. 

*OAPEC  – Founded in 1968 and stands for the Organisation of Arab Petroleum Exporting Countries, limited to Arab oil-exporting nations. With headquarters in Kuwait the current membership includes Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, Syria, Tunisia, and the UAE (United Arab Emirates). This is a separate group from OPEC (Organisation of Petroleum Exporting Countries) which was founded in 1960, membership includes countries from Africa, the Middle East and South America. 

The Strait of Hormuz Blockade

Today’s oil crisis is different from the 1970s insofar as oil, gas and fertiliser shortages are due to the current United States/Israel/Iran conflict. This has resulted in the blockade of the Strait of Hormuz, through which circa 20% of the world’s oil and natural gas is shipped. Analysts and experts in the energy and economic arenas are at loggerheads as to the potential fall-out from this crisis, but all are agreed that this war should end sooner rather than later. 

Potential for Greater Economic Instability

A number of experts suggest that the fall-out from this crisis could be worse than the 1973 crisis, where both the USA and the UK suffered recessions from 1973 – 1975. In the UK, this resulted in the downfall of the Edward Heath led conservative government. One expert has suggested that currently, there could be a bigger energy shock as opposed to the early 70’s when there was a cut in oil of 5% – 7%, however, today we are looking at a global cut of circa 20%, and things will only get worse the longer the crisis goes on. Not only will there be a massive spike in oil, gas and food prices, but there will also be hikes in interest rates to combat the inevitable inflation. 

Supply Chain Risks: Beyond Fuel

Currently, there is irrefutable proof of what the future may hold as jet fuel has almost doubled, which will lead to increases in airfares, prices for the consumer at the pumps for diesel and petrol have already risen, and some foodstuffs in supermarkets are already seeing an increase in prices. One third of the world’s helium flows through the Strait of Hormuz, which is essential for the production of semi-conductors or micro chips used in just about everything consumers use on a daily basis. Analysts report that the Gulf region is also central and crucial to the global fertilizer supply, and if it becomes scarce the world could also be in for a food shock to add to the on-going energy shock.

The Long Road to Recovery

Consumers and governments alike are lucky that summer is fast approaching, therefore resulting in lower heating costs to households. However, experts advise that if the war was to end tomorrow, it would take at least a year for supply lines to get back to normal, and a further year to see a reduction in prices. However, if there has been substantial damage to refineries and export outlets, then analysts suggest it could be up to five years before normality resumes. 

The Limitations of Renewable Energy

Data shows that in the EU, wind and solar energy combined now outpace fossil fuel generation by 30% – 29%, and in the UK in 2024, renewables for the first time produced more than 50% of electricity. However, despite forward steps being made for renewables taking over from fossil fuels, and despite the ongoing rhetoric, the crisis in the Middle East shows that even after just five weeks of the Strait of Hormuz being closed, there is already an energy crisis which highlights how far renewable energy still has to go. It is hoped that this conflict will end soon, otherwise, and according to experts, there could be intolerable economic hardship.

The Emergence of a New Financial Fundamental

Experts advise that President Donald Trump has now become a financial fundamental*. Based on market analysis between early 2025 and today, his public statements, executive actions and social media posts have acted as immediate drivers of financial market volatility. Analysts now suggest that President Trump acts as a fundamental factor that traders and investors must track in order to manage risk. A recent example was President Trump’s announcement that the war would be ending soon, sending the US Dollar up and gold and crude oil down. 

*Financial Fundamentals – Geopolitical and economic data or statements released into the financial world that affect the prices of commodities, bonds, currencies, interest rates, futures etc., depending on the interpretation by traders and investors. 

Market Reaction to Geopolitical Tension

This week, market volatility has been rampant following mixed messages regarding Iran. Oil prices opened Monday by skyrocketing to over $120/bbl, while US stock futures initially tumbled. However, after President Trump announced the conflict would soon end, the S&P 500 posted its largest one-day rally in a month, while oil plummeted back below $90/bbl.

Volatility and the Fear Gauge

Trump continues to fan the flames of market volatility, which has reached its most intense levels since the ‘Liberation Day’ tariffs of last April. Reflecting this turbulence, the VIX (Cboe Volatility Index) surged past the 35 mark on Monday, more than doubling its value since the start of the year.

*Cboe Volatility Index –  The Chicago Board Option Exchange Volatility Index was introduced by Cboe Global Markets in 1993 and is referred to as VIX. This is a market index that measures the implied volatility of the S&P 500 Index (SPX) – the core index for United States equities.

Crude Oil and the Strait of Hormuz Crisis 

Brent Crude Oil has also seen wild fluctuations this week, spiking at just under $120pbl on Monday and dropping to a low of $81.16pbl on Wednesday. This was due to mixed messages from the White House with Energy Secretary Chris Wright, who posted then deleted a message confirming the US Navy had successfully escorted a tanker through the Strait of Hormuz, which as it turned out was blatantly untrue. The Strait of Hormuz, the critical gateway out of the Persian Gulf, remains closed and as such, oil is currently trading at $92.54pbl.

ECB Policy and Inflationary Pressure

Elsewhere, officials of the ECB (European Central Bank) have suggested that the next meeting of the Governing Council might see a change in policy towards interest rates. Currently, an increase in policy rates may be on the cards as they keep an eye on inflation. Interest rates are currently hovering around the ECB’s benchmark target of 2.00%, but analysts advise that money markets have increased bets on the tightening of monetary policy, as energy costs skyrocket putting upward pressure on inflation.

Central Bank Caution Amidst Global Uncertainty

Christine Lagarde, President of the ECB, has assured the Eurozone that the bank will act to prevent another inflation crisis similar to the one sparked on 24th February 2022 when the Russia-Ukraine conflict began. President Lagarde also stated, “Today there is so much uncertainty that I’d be incapable to say what we will decide at the upcoming policy meeting (18^th – 19^th March). We won’t rush into a decision because there is too much uncertainty, too much volatility.” While many observers agree with this statement, market analysts suggest that global stability would be much easier to achieve if President Trump and his administration moved away from the erratic rhetoric that continues to destabilize the markets.