KHALEEJ TIMES :Global oil markets are being reshaped by a supply shock unlike anything seen in decades, as the ongoing conflict involving Iran chokes off the world’s most important crude artery and forces exporters into costly, improvised workarounds.

Crude posted one of its sharpest rallies in years in the most recent session, with WTI gaining 6.81 per cent and Brent surging 5.76 per cent to briefly punch through $100 a barrel, before easing back to consolidate. “The rally was primarily driven by escalating geopolitical tensions after Iran-backed Houthi militants claimed they had attacked Saudi oil tankers in the Red Sea, raising concerns over another major disruption to global energy supplies,” said Vijay Valecha, Chief Investment Officer at Century Financial. He noted the attack “threatens a key alternative shipping route to the Strait of Hormuz, forcing cargoes destined for Europe to take the much longer route around South Africa.”

Valecha added that markets are not yet fully pricing the risk. Citing JP Morgan estimates, he said global oil supply has fallen by 11.1 million barrels a day since the conflict began, while demand has dropped 5.1 million barrels a day on weaker Chinese crude imports and petrochemical activity — a demand slump that has “helped prevent an even sharper rise in oil prices.” Technically, he flagged $91 as key support and $94.50 as the level that would open the door toward $99.

Gulf exports gutted

Fresh tracking data from Wood Mackenzie lays bare the scale of the disruption. Crude exports from the Middle East Gulf fell 82 per cent between January and June, from an average of 18.8 million barrels per day across 370 cargoes to just 3.4 million barrels per day across 71 cargoes. Traffic through the Strait of Hormuz, which carried 11.4 million barrels a day of crude capacity in January, “effectively ceased” after US-Israel strikes on Iran on 28 February. By early July, large crude carrier movements had only partially recovered to roughly 4.4 vessels per day, with Suezmax outbound transits at zero and freight rates running at roughly triple pre-conflict levels.

The damage has fallen hardest on producers with no alternative to the Strait. Iraq, which exported 3.77 million barrels a day in January, recorded zero exports by June; Kuwait and Qatar followed the same path from April, having no pipeline bypass. Saudi Arabia diverted flows through its East-West Petroline to the Red Sea terminal at Yanbu, which handled 98.6 per cent of Saudi liftings by June — but even that route has been losing steam, with Yanbu volumes down 41 per cent from their March peak.

“For months, the market treated Yanbu as the answer to Hormuz risk,” said Ian Solis, data analyst for Tech/Maritime-Ops at Wood Mackenzie. “The problem is that Yanbu has its own chokepoint. If Bab al-Mandeb comes under sustained disruption from a declared Houthi naval blockade, Asia stands to lose a major crude supply artery. What looked like diversification was in reality a shift from one strategic bottleneck to another.”

A toll on Hormuz now looks likely

Beyond the physical blockage, a new financial risk is emerging: the prospect of a permanent transit fee. A 15 July research briefing from Oxford Economics finds that “the post-conflict governance of the Strait of Hormuz has emerged as one of the key obstacles to a permanent US-Iran agreement,” with both Iran and Oman pushing to introduce charges framed as service fees. Betting markets, the report notes, already “signal a 72 per cent probability of Iran introducing fees by year-end.” Iran’s implied $1-per-barrel levy — equivalent to roughly 1.2 per cent of the current Brent price — could raise an estimated $6.8bn annually, more than Egypt earned from the Suez Canal in 2025/26, though Oxford Economics cautions that higher transit costs would only accelerate producers’ shift toward pipelines and alternative routes.

A fragile calm expected to hold — for now

Despite the alarm, some strategists see the spike as overdone. “The pre-conditions that led to the early summer truce are unchanged,” said Norbert Rücker, Head of Economics & Next Generation Research at Julius Baer. “None of the involved conflict parties have an interest in the situation getting out of hand.” He argued Iran’s dependence on Asian buyers, the Gulf states’ reliance on trade, and US political sensitivity to fuel inflation all point toward a return to negotiations. “We remain confident that prices will follow the usual geopolitical pattern and that the current spike will prove short-lived,” Rücker said — though Julius Baer has still shifted its natural gas outlook to Cautious, judging the current risk premium in energy prices “excessive.”

For now, the market is left balancing two competing realities: a supply shock that is real, measurable and still deepening, against a geopolitical logic that has, so far, always found its way back to the negotiating table.