Following the outbreak of fresh hostilities between the United States and Iran, oil prices spiked rapidly. However, despite supply disruptions, threats to life, and severe congestion in the Strait of Hormuz, prices stayed well below the forecasts of analysts and investment bankers.
When President Trump declared a unilateral ceasefire, which Iran reluctantly accepted through Pakistani mediation a few weeks ago, oil prices plummeted nearly to pre-war levels, with WTI and Brent falling to $64 and $69 per barrel respectively.
Hostilities soon resumed when Iran attacked oil tankers in the Strait of Hormuz. In response, President Trump ordered a thirteen-day campaign of strikes against Iran before pausing to give diplomacy another chance, causing oil prices to fall once more.
As tit-for-tat attacks escalated, Iran-backed militias in Iraq and Yemen formally entered the conflict. They targeted Saudi oil facilities, American bases in Kuwait, Jordan, and Bahrain, and gas tankers in Egypt. Iran clearly signaled an intent to escalate rather than de-escalate.
At the height of the war that began on February 28, 2026, Iran warned that if it could not export its oil, no other nation in the region would be allowed to either. The intensified attacks on shipping lanes in the Strait of Hormuz and on Kuwaiti oil infrastructure demonstrated that this was a deliberate strategy rather than empty rhetoric.
China, the world's second-largest oil consumer, has significantly curtailed its imports in tandem with weakening demand. June PMI data revealed a contraction in Chinese manufacturing activity compared to May, highlighting a slowdown in the world's second-largest economy despite brief growth earlier in the month.
Several key factors have helped stabilize the market and prevent prices from breaking the $100 mark, a threshold that would have easily been shattered in previous decades.
Developed nations have drawn down their strategic petroleum reserves to offset shortages, while major Middle Eastern exporters have rerouted oil through pipelines to the Gulf of Oman to bypass the volatile Strait of Hormuz. Although these pipelines move lower volumes than maritime tankers, they have maintained reasonable inventory levels. Additionally, exporters like Saudi Arabia have offered price discounts to incentivize buyers in Asia, the region hardest hit by the conflict's volatility.
At sea, while Iran claims control over the Strait of Hormuz, the U.S. Navy continues to escort merchant ships while enforcing what Washington describes as an impenetrable naval blockade against Iranian vessels.
Meanwhile, despite crippling inflation and a collapsing currency, Iran has managed to sustain its war effort as the conflict enters its sixth month, frustrating U.S. military strategists despite the combination of supply disruption, danger to lives and congested water way in the Strait of Hormuz.
