Oil traders once bet on quick resolution. They wagered that diplomacy or military pressure would pry open the Strait of Hormuz within weeks. Those bets look shaky now. Nearly three months after the U.S.-Israel conflict with Iran erupted, tanker traffic remains a fraction of normal levels. Global stockpiles are draining at a record clip. And analysts warn the market stands on the edge of disorder.
Brent crude settled at $109.26 a barrel on May 15, up more than 3 percent for the day and nearly 8 percent for the week, according to Reuters. West Texas Intermediate climbed even harder, gaining 4.2 percent to $105.42. Prices have swung wildly since fighting began in late February. They spiked past $120 at one point, eased on ceasefire hopes, then resumed their climb as those hopes faded.
The reason sits in a narrow waterway. Before the war roughly 20 million barrels of oil moved through the Strait of Hormuz each day. That flow represented one fifth of global seaborne crude. Attacks on vessels, a U.S. naval blockade on Iranian ports, and Iranian retaliation have slashed crossings to a trickle. Iran’s Revolutionary Guards reported about 30 vessels passed between Wednesday evening and Thursday in mid-May. Typical daily traffic once topped 140. Even recent upticks, with 10 ships crossing in a single 24-hour period per shipping data firm Kpler, barely dent the deficit.
One billion barrels of supply have already vanished from the market, estimates suggest. That loss dwarfs the International Energy Agency’s planned release of 400 million barrels from strategic reserves. The IEA itself noted the world is drawing down inventories at a record pace. By May 8 governments and industry had released 164 million barrels. “Rapidly shrinking buffers amid continued disruptions may herald future price spikes ahead,” the agency stated in its latest monthly report, as cited by Fortune.
Commercial inventories in developed economies are approaching operational stress. JPMorgan analysts forecast they could hit that threshold by early June. Saudi Aramco has warned that gasoline and jet fuel stocks risk reaching critically low levels just as summer demand peaks. Buffers built before the conflict have largely disappeared. And once they do, the physical market takes over.
Hamad Hussain, climate and commodities economist at Capital Economics, spelled out the risk. “But if the Strait remains effectively closed and commercial oil inventories in the OECD continue to be run down at the same pace as they were in April, oil stocks could reach critically low levels by the end of June,” he wrote. “That would be consistent with Brent crude prices reaching an all-time nominal peak, and could require more disorderly and economically damaging cuts to oil demand.” Hussain sees prices topping $130 to $140 a barrel next month under that scenario.
UBS analysts struck a similar tone. Inventories are nearing record lows. “Buffers have now largely been exhausted.” Lower stocks mean higher volatility. They also raise the chance of panic buying should physical shortages intensify while the strait stays blocked. The adjustment may not be linear. Prices could surge in sharp, discontinuous jumps as buyers scramble for barrels that simply aren’t there in the usual volumes.
So far the worst has been avoided. Ample floating storage when the war started helped. Governments tapped strategic reserves aggressively. China cut its imports and drew down domestic stocks. Asian nations turned to rationing in some cases. Yet these measures buy time, not solutions. Physical limits apply. Storage tanks cannot empty completely. Minimum operating levels must remain to keep pressure in pipelines and tanks. Daily release rates face logistical ceilings.
The U.S. Energy Information Administration now assumes the strait will stay closed through late May, longer than earlier projections. The agency expects global inventories to fall by 2.6 million barrels per day on average this year. That figure is far steeper than previous estimates. Middle East supply losses could peak at 10.8 million barrels daily in May. The EIA’s outlook factors in emergency reserve releases, yet still points to tightening markets.
Recent diplomatic efforts yielded little. President Donald Trump’s meeting with Chinese leader Xi Jinping produced agreement that the strait must reopen and that Iran cannot possess nuclear weapons. Trump later said he is running out of patience with Tehran. Iran’s foreign minister responded that his country has no trust in Washington and will only negotiate if the U.S. shows seriousness. Tehran also signaled readiness to resume fighting. The tone between the two sides has grown confrontational again, analysts at Commerzbank observed.
Some tankers still move, often with transponders switched off to avoid detection. The UAE has slipped hidden shipments through. Iraq secured safe passage for supertankers carrying Iraqi crude. Four vessels, each holding about 2 million barrels, exited recently according to Bloomberg vessel tracking. Yet these sporadic flows represent a small fraction of lost volume. They calm sentiment more than they balance supply.
Refined product markets already show strain. Diesel and jet fuel prices have climbed faster than crude in certain windows, occasionally exceeding $200 a barrel equivalent in spot markets. Asian buyers dependent on Middle East supply face shortages of both crude and liquefied petroleum gas. Some manufacturers have begun stockpiling in anticipation of worse disruption. European oil majors have profited from trading volatility, capturing as much as $4.75 billion in gains from the swings, the Financial Times reported last week.
History offers limited parallels. The 1979 Iranian revolution and the 1990 Gulf War triggered major price spikes. Neither matched the scale of this shutdown. Cumulative losses already exceed one billion barrels. The IEA has called it the largest supply disruption in the history of the global oil market. Demand destruction will eventually arrive. Higher prices curb consumption. Economic growth slows. Yet that process can turn disorderly when physical barrels disappear faster than buyers can adjust.
Traders watch inventory reports with fresh intensity. The latest U.S. government data showed commercial crude stocks falling more than expected, with sharp drops at the key Cushing, Oklahoma hub. Such draws reinforce the tightening narrative. If the next several weeks bring similar numbers while diplomatic progress stalls, attention will shift from geopolitics to pure logistics. How quickly can non-OPEC supply respond? Which refiners will cut runs first? Who secures the remaining cargoes from alternative sources such as the U.S. or Brazil?
Answers matter for industries far beyond energy. Airlines face higher jet fuel costs. Truckers pass diesel expenses to shippers. Chemical producers see feedstock prices jump. Emerging economies already rationing fuel could face social unrest if prices keep rising. Central banks, still wary of inflation, must weigh whether energy-driven price increases justify tighter policy even as growth falters.
The margin for error has narrowed dramatically. Strategic reserves provided a cushion. That cushion is thinning. Once inventories hit operational minimums, the market cannot paper over the gap with paper barrels or hopes of a breakthrough. Physical oil must move. Until tankers resume regular transit through Hormuz in meaningful numbers, the risk of a sharp, non-linear price surge and widespread hoarding will hang over every trading desk.
Some voices still cling to optimism. A sudden diplomatic deal could reopen the strait. Naval escorts and insurance programs might encourage more traffic. Yet each passing week without resolution hardens the outlook. Capital Economics, UBS, JPMorgan and the IEA speak with unusual alignment. Their message is blunt. The safety net is gone. The next phase could arrive sooner than markets currently price.
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