More than ten weeks after the war in the Middle East began, cumulative oil supply losses from the Strait of Hormuz have exceeded 1 billion barrels, with more than 14 million barrels per day of Gulf production currently shut in. The International Energy Agency has described the disruption as “an unprecedented supply shock” in its May 2026 Oil Market Report.
Despite the scale of the disruption, oil markets have proved less violent than analysts initially feared. Brent crude, the international benchmark, was trading around $110 per barrel late last week — well below the $200 some forecasters had predicted at the war’s outset. Prices have swung wildly between a high of $144 per barrel and a low below $100 as conflicting signals over a US-Iran ceasefire have whipsawed traders.
“Everyone is scratching their heads”
Matt Smith, lead oil analyst at Kpler, captured the prevailing market mystery: “I would have expected prices to be above $200. It’s crazy. Everyone is scratching their heads about this.” US gasoline prices currently sit at around $4.39 per gallon — high by recent standards, but nowhere near the levels analysts modelled when 14 million barrels first came offline.
The IEA explains the relative restraint in pricing by pointing to pre-war market conditions. “The current supply-demand gap is significantly smaller than the gross production loss,” the agency wrote in its monthly report, “because the market was already in surplus heading into the crisis while producers and consumers alike are responding to market signals.” Atlantic Basin producers have ramped up output, and demand has compressed under the price shock.
Saudi Arabia leans on Petroline
Among the workarounds visible on the production side, Saudi Arabia has shifted significant volume to its Petroline pipeline, which carries crude from the eastern fields at Abqaiq to the Red Sea port of Yanbu. The route offers a partial alternative to the Strait of Hormuz, through which roughly 20% of global oil traffic passed before the war.
The UAE has also been hit directly: Emirati authorities reported coming under attack from Iranian missiles and drones during the most recent flare-up in early May, when the US military said it had destroyed six Iranian small boats in response to attacks on commercial vessels. Brent jumped nearly 6% on a single Monday to $114.44 a barrel during that exchange before easing back.
Deficit until Q4
The IEA’s base-case scenario assumes flows through the Strait gradually resume from the third quarter of 2026, conditional on a US-Iran deal. Even on that assumption, the report warns that “supply will likely be slower to recover” than demand, leaving the global oil market in deficit until Q4. With inventories already drawing at a record pace, the agency expects “further price volatility ahead of the peak summer demand period.”
For consumer economies in Europe — Britain among them — the second-round effects are now visible in headline inflation. UK CPI climbed to 3.3% in March and is forecast to rise further. The Bank of England has paused its rate-cutting cycle at 3.75% and signalled that hikes are possible later in 2026.
Goldman Sachs had warned at the war’s outset that Brent could “briefly peak at $110 per barrel if oil flows through the critical waterway were halved for a month.” That scenario has now materialised — and held — for more than two months. The longer the war drags on, the more the structural inventory drawdown accumulates, and the harder it becomes to believe in a quick return to normal once any ceasefire is finally agreed.
