Op-Ed: Oil Prices Swing as Renewed US-Iran Strikes Put Global Supply Risk Back in Focus

Renewed military exchanges between the United States and Iran have once again pushed geopolitical risk to the centre of the oil market, but sharp intraday price swings show traders are balancing fears of further supply disruption against evidence that significant volumes of crude are still reaching international markets.

Oil prices initially climbed nearly 1 percent during early Asian trading on Wednesday, extending Tuesday’s steep gains as renewed hostilities between the United States and Iran raised concerns over energy flows from the Middle East.

Brent crude futures were trading at around US$95.52 per barrel during the early session, while US West Texas Intermediate (WTI) reached approximately US$91.02. The move followed gains of more than US$4 per barrel on Tuesday.

However, prices subsequently reversed course when Brent climbed as high as US$97.04 per barrel and WTI touched US$92.29, their highest levels since July 24, before falling to around US$94.08 and US$89.50 respectively by 11:35 GMT.

That volatility is perhaps more significant than the direction of prices itself. Oil markets are increasingly being driven by two competing possibilities: further escalation that restricts Middle Eastern exports, or diplomatic and logistical progress that allows more barrels to reach the market.

Hormuz Remains the Central Variable

At the centre of the market calculation is the Strait of Hormuz. The narrow waterway between Oman and Iran is one of the most important energy corridors in the world. According to the US Energy Information Administration, approximately 20.9 million barrels per day of oil passed through Hormuz during the first half of 2025, equivalent to roughly 20 percent of global petroleum liquids consumption and around one-quarter of internationally traded maritime oil.

Asia is particularly exposed as around 89 percent of crude oil and condensate moving through Hormuz during the first half of 2025 was destined for Asian markets, with China, India, Japan and South Korea together accounting for 74 percent of flows.

The Strait is also equally important for natural gas; approximately 11.4 billion cubic feet per day of LNG, representing more than 20 percent of global LNG trade, passed through Hormuz during the same period, principally from Qatar.

Alternative export infrastructure exists, but cannot fully replace the Strait. The EIA estimates that pipelines in Saudi Arabia and the UAE could together provide roughly 4.7 million barrels per day of bypass capacity – only a fraction of the volumes normally transported through Hormuz.

This explains why even limited disruptions can generate a significant geopolitical premium in crude prices.

Physical Supply Is Still Moving

The market is not pricing a complete shutdown, however, as US Energy Secretary Chris Wright reported that approximately 17 million barrels of oil transited the Strait of Hormuz on Monday, the highest level recorded since flows were disrupted by the conflict. Albeir, this has not been independently verified.

Energy companies and traders have also adapted their logistics as ship-to-ship transfers outside the Strait have increasingly been used to move energy cargoes while reducing the exposure of international vessels to the most sensitive sections of the route.

Three recent LNG cargoes originating from Qatar and the UAE were transferred between vessels in international waters outside Hormuz, including waters off Oman and the UAE, according to Reuters. Such operations remain unusual for LNG but illustrate how exporters and shipping companies are adjusting supply chains to maintain deliveries.

Preliminary Kpler data cited by Reuters showed only four commodity vessels transited Hormuz on Tuesday, compared with 10 the previous day and a recent 10-day average of around 13. Vessel-tracking data can be incomplete, particularly when ships switch off transponders for security reasons, but the numbers demonstrate that normal commercial shipping conditions have yet to return.

The Global Supply Cushion Has Become Thinner

The latest price reaction also comes against a tighter global physical backdrop. The International Energy Agency estimated that global oil supply reached 101.5 million barrels per day in July, but remained around 6.3 million barrels per day below year-earlier levels. Gulf production had recovered to 23.9 million barrels per day but was still approximately 8.3 million barrels per day below pre-conflict levels.

Inventories have also been drawn down when globally observed oil stocks fell by 69 million barrels in July alone. By the end of July, inventories had declined by approximately 410 million barrels since the beginning of the conflict, according to the IEA. The agency estimated a global oil-market deficit of around 1.8 million barrels per day during the third quarter of 2026.

This makes additional disruptions more consequential than they would be in a market holding large surplus inventories.

OPEC+ also has fewer immediately accessible options than headline production-capacity numbers might imply. The IEA calculated effective OPEC+ spare capacity at approximately 1.09 million barrels per day in July, under its methodology and excluding shut-in Iranian and Russian capacity.

Why Oil Has Not Moved Much Higher

Despite the supply concerns, Brent remains well below the peaks recorded during previous episodes of escalation.

One reason is weakening demand: the IEA expects global oil demand to decline by 1.6 million barrels per day in 2026, partly as elevated fuel prices, reduced product availability and disruptions to international supply chains weigh on consumption.

The market is consequently also dealing with an unusual combination: restricted supply alongside weaker demand. A Reuters survey of 31 analysts published at the end of August projected Brent crude would average approximately US$85.08 per barrel during 2026, while WTI was forecast to average US$80.20. The forecasts suggest analysts broadly expect geopolitical risks to keep oil elevated without necessarily assuming that current disruptions develop into a sustained worst-case scenario.

Conversely, diplomatic progress could remove a significant portion of the geopolitical premium almost immediately. On August 4, Brent fell more than 5 percent following indications of progress in diplomatic efforts aimed at easing the conflict and restoring shipping through Hormuz.

Diplomacy Is Increasingly an Energy-Market Variable

Oman has a particularly important position in this equation, both geographically and diplomatically. Oman and Iran are the two coastal states bordering the Strait of Hormuz. In a joint statement issued in June, the two countries reaffirmed their commitment to the safe passage through the Strait in accordance with applicable international law, while recognising their respective sovereignty and sovereign rights over territorial waters.

Discussions have subsequently continued over mechanisms that could facilitate navigation and manage traffic through the waterway. Qatar has also been involved in regional mediation efforts, while publicly supporting Oman’s efforts to reduce escalation and restore shipping.

Iranian officials said in late August that progress had been made with Oman on arrangements concerning navigation through the Strait, although broader reopening remains connected to unresolved political and security issues involving Tehran and Washington.

The Bigger Economic Risk

The consequences extend beyond oil producers and traders. Persistently high crude and LNG prices raise transportation, aviation, manufacturing and electricity costs and can eventually feed through to consumer inflation. Wednesday’s renewed rise in energy prices also contributed to pressure across global bond and equity markets as investors reassessed the inflation outlook.

For Gulf energy exporters, higher oil prices can provide stronger hydrocarbon revenues, but those benefits have to be considered alongside the wider economic cost of disrupted shipping, more expensive logistics, regional investment uncertainty and weaker global economic growth.

The most economically favourable outcome for the region is therefore not necessarily the highest possible oil price, but a combination of stable energy prices, secure export routes and predictable commercial conditions.

The latest movement in Brent demonstrates precisely that tension. Markets are prepared to attach a substantial premium to the possibility of disrupted Middle Eastern supply. But they are equally prepared to remove that premium when physical exports improve or diplomatic progress becomes credible.