Media365
When the United States and Israel entered into direct conflict with Iran at the end of February, energy markets braced for one of the biggest supply shocks in decades. Analysts warned that Brent crude could soar to $150 or even $200 per barrel if the Strait of Hormuz—a waterway that carries nearly one-fifth of the world’s oil supply—was shut for an extended period.
Instead, the oil market told a very different story.
Although Brent crude briefly climbed to around $126 per barrel during the peak of the conflict, it remained well below its 2008 record of nearly $147. As geopolitical tensions eased temporarily in June, prices retreated sharply, with Brent briefly returning to around $70 a barrel in early July before stabilising.
The resilience of oil prices reflects a combination of weaker-than-expected demand, abundant global supplies and traders becoming increasingly cautious about reacting to geopolitical headlines.
China’s slowdown removed the biggest demand pressure. Perhaps the largest surprise for oil markets came from China.
The world’s biggest crude importer sharply reduced oil purchases, with imports falling to their lowest level in nearly a decade by June. Several structural changes contributed to the slowdown.
China curtailed fuel exports, petrochemical plants lowered crude processing rates, and the rapid shift towards electric mobility reduced gasoline demand. The growing adoption of electric taxis and commercial fleets further weakened oil consumption, removing what would otherwise have been a major source of global demand during the conflict.
Record US production offset supply fears
The United States emerged as the biggest stabilising force in global oil markets.
American crude production climbed to a record 13.93 million barrels per day during April, helping offset concerns about potential disruptions from the Middle East.
Washington also tapped its Strategic Petroleum Reserve, coordinating one of the largest emergency releases with the International Energy Agency. The additional barrels reassured markets that emergency supplies would be available if the conflict escalated further.
Markets stopped reacting to every headline
Another factor limiting oil’s rally was changing market psychology.
During the early stages of the conflict, every military development triggered sharp moves in crude prices. But as the war dragged on, traders became increasingly reluctant to place aggressive bullish bets.
Frequent statements from US President Donald Trump about possible ceasefires, diplomatic negotiations, and the reopening of shipping routes repeatedly reversed market sentiment, making investors wary of betting on prolonged price spikes.
The result was lower speculative participation even as fighting continued.
Hormuz’s disruption proved temporary
One of the market’s biggest fears—a prolonged closure of the Strait of Hormuz—never fully materialised. Although shipments were disrupted during the conflict, exports partially resumed in June before facing renewed interruptions in July.
Meanwhile, Saudi Arabia increased exports through its Red Sea facilities at Yanbu, allowing a significant portion of Gulf crude to reach international buyers without relying entirely on Hormuz. Alternative export routes reduced the severity of the supply shock and eased concerns over immediate shortages.
The physical crude market remained well-supplied.
Despite the geopolitical tensions, traders reported that prompt physical crude remained readily available across key markets.
North Sea crude grades that had traded at record premiums earlier in the conflict gradually moved into discounts, signalling that buyers were finding sufficient supplies. The availability of physical cargoes prevented futures prices from spiralling higher despite continuing military risks.
New centres of oil demand are emerging.
While Chinese demand softened, other parts of the world quietly absorbed more crude, preventing a sharp collapse in overall consumption.
India remained one of the fastest-growing oil consumers, driven by expanding transport demand, industrial activity and aviation fuel usage. Southeast Asian economies, including Indonesia and Vietnam, also continued to register steady growth in petroleum consumption as manufacturing and mobility recovered.
In the Middle East, domestic fuel demand remained elevated during the summer months due to higher electricity generation and air-conditioning needs. Several African economies also posted gradual increases in diesel consumption linked to infrastructure development and mining activity.
These regions did not fully replace China’s appetite for crude, but together they provided an important cushion that helped balance global demand.
Risks remain despite market resilience.
Oil markets are not entirely out of danger. A prolonged disruption to Hormuz exports, wider involvement of regional producers, or a sharp rebound in Chinese demand could still tighten global supplies significantly.
For now, however, record U.S. production, diversified export routes, adequate inventories, and slower demand growth have prevented the geopolitical crisis from triggering the kind of oil shock many had anticipated at the beginning of the war.
