For decades, oil traders, executives, and analysts warned that closing the Strait of Hormuz would be a global economic catastrophe. Yet, more than three months after the waterway was effectively blocked, crude oil remains below $100 a barrel, defying grim forecasts of prices reaching $200.
Workarounds Mitigate Supply Shock
A combination of record US exports, a sharp slowdown in Chinese demand, and a steady trickle of crude still passing through the strait has absorbed much of the shock from the loss of over 10 million barrels per day of Middle Eastern supply. A pre-war surplus has also helped ease the blow.
Record US Exports
The United States has emerged as a key swing supplier since launching strikes on Iran in late February. American crude and fuel exports in May were more than 2 million barrels per day higher than the average for all of last year, providing a critical buffer.
Chinese Demand Slump
China, the world's largest oil importer, slashed inbound shipments by almost 40% in May compared to last year's average, according to Vortexa Ltd. This reduction offsets between a third and a fifth of the barrels lost to the conflict.
Emergency Measures and Resilient Markets
Governments globally coordinated a historic release of strategic reserves, while Gulf producers rerouted shipments through alternative export routes. Some tankers continued moving cargoes via the strait despite risks, using increasingly opaque methods to avoid military threats.
“Over three months into this conflict, the world has proven surprisingly resilient,” said Maria Angelicoussis, CEO of Angelicoussis Group, the largest Greek shipowner. “Commodity prices are up by 50% or 60%, but they’re not at the sky-high levels I expected.”
Political Implications
Oil trading well below $200 a barrel has given President Donald Trump wiggle room in negotiations with Iran, even as he insists a peace deal is within reach. However, a renewed price spike could pressure the White House to strike a deal quickly to protect the global economy.
