The war involving the United States, Israel and Iran has stripped more than $50 billion from global oil output in under two months, jolting crude flows, refinery activity and shipping across the Gulf while exposing how fragile the world’s energy system remains when the Strait of Hormuz is caught in the middle. More than 500 million barrels of crude and condensate have been knocked out of the market since the conflict began at the end of February, while March alone saw the sharpest oil supply disruption in modern history.
What began as a military confrontation has turned into a wider economic shock. The Strait of Hormuz, which carries about 20 million barrels a day of crude and oil products and roughly a quarter of the world’s seaborne oil trade, remains the key pressure point. Although Iranian Foreign Minister Abbas Araqchi said on April 17 that the waterway was open following a ceasefire accord linked to Lebanon, shipping has stayed erratic. On April 20, vessel traffic was again close to a standstill after warning shots were fired at ships and the United States seized an Iranian cargo vessel. Ship-tracking data showed just three crossings in 12 hours, against a normal flow of about 130 vessels a day.
The market damage extends well beyond headline oil prices. Gulf producers lost about 8 million barrels a day of crude output in March, and the International Energy Agency said global oil supply fell by 10.1 million barrels a day that month to 97 million barrels a day, with OPEC+ output down 9.4 million barrels a day. Outside the Gulf, inventories were drained rapidly as buyers scrambled for barrels. The IEA said observed global oil inventories fell by 85 million barrels in March, while stocks outside the Middle East Gulf dropped by 205 million barrels as Hormuz flows were choked off. That strain forced the agency into its sixth and largest collective emergency action on March 11.
Crude prices reflected the stress almost immediately. On March 5, Brent settled at $85.41 a barrel after a near 5 per cent jump, while US crude climbed more than 8 per cent to $81.01 as traders priced in mounting supply losses. By April 20, after a weekend flare-up that put the ceasefire under strain, Brent was back near $94.75 a barrel and US crude was close to $87.82. Some banks now expect Brent to remain above $90 for periods this year if Middle East supply losses persist, with end-2026 forecasts still well above pre-war assumptions.
The physical disruption has been just as severe as the price response. Iraq shut in nearly 1.5 million barrels a day of production because storage began filling up when tankers could not move through Hormuz. Qatar halted liquefied natural gas production for the same reason, while analysts warned Kuwait and the United Arab Emirates could also be forced to curb supply if bottlenecks endured. Jet fuel exports from Saudi Arabia, Qatar, the United Arab Emirates, Kuwait, Bahrain and Oman collapsed from about 19.6 million barrels in February to only 4.1 million barrels for March and the first part of April combined, tightening aviation fuel markets at a time when airlines were already facing route disruption across the region.
Refining and logistics have become the next fault lines. The IEA said Middle East and feedstock-constrained refineries in Asia cut runs by around 6 million barrels a day in April, while global crude runs are now expected to decline by 1 million barrels a day on average in 2026. Only Saudi Arabia and the United Arab Emirates have meaningful bypass routes that could divert exports away from Hormuz, and even those alternatives amount to just 3.5 to 5.5 million barrels a day of spare capacity, far short of the nearly 20 million barrels a day usually moving through the strait. That mismatch explains why reopening the waterway, even partially, does not mean an immediate return to normal trade.
The broader economic hit is now feeding into demand forecasts. The US Energy Information Administration has cut its estimate for 2026 global oil demand growth to 0.6 million barrels a day from 1.2 million, citing fuel shortages, lower product exports and weaker consumption concentrated in Asia, which is most exposed to Middle East crude. Citi said on April 20 that global crude and product inventories could still fall by about 900 million barrels even if Washington and Tehran extend their ceasefire this week and both Hormuz flows and oil production recover by the end of June. Under a more prolonged disruption, the bank sees inventory losses rising to 1.3 billion barrels.
What began as a military confrontation has turned into a wider economic shock. The Strait of Hormuz, which carries about 20 million barrels a day of crude and oil products and roughly a quarter of the world’s seaborne oil trade, remains the key pressure point. Although Iranian Foreign Minister Abbas Araqchi said on April 17 that the waterway was open following a ceasefire accord linked to Lebanon, shipping has stayed erratic. On April 20, vessel traffic was again close to a standstill after warning shots were fired at ships and the United States seized an Iranian cargo vessel. Ship-tracking data showed just three crossings in 12 hours, against a normal flow of about 130 vessels a day.
The market damage extends well beyond headline oil prices. Gulf producers lost about 8 million barrels a day of crude output in March, and the International Energy Agency said global oil supply fell by 10.1 million barrels a day that month to 97 million barrels a day, with OPEC+ output down 9.4 million barrels a day. Outside the Gulf, inventories were drained rapidly as buyers scrambled for barrels. The IEA said observed global oil inventories fell by 85 million barrels in March, while stocks outside the Middle East Gulf dropped by 205 million barrels as Hormuz flows were choked off. That strain forced the agency into its sixth and largest collective emergency action on March 11.
Crude prices reflected the stress almost immediately. On March 5, Brent settled at $85.41 a barrel after a near 5 per cent jump, while US crude climbed more than 8 per cent to $81.01 as traders priced in mounting supply losses. By April 20, after a weekend flare-up that put the ceasefire under strain, Brent was back near $94.75 a barrel and US crude was close to $87.82. Some banks now expect Brent to remain above $90 for periods this year if Middle East supply losses persist, with end-2026 forecasts still well above pre-war assumptions.
The physical disruption has been just as severe as the price response. Iraq shut in nearly 1.5 million barrels a day of production because storage began filling up when tankers could not move through Hormuz. Qatar halted liquefied natural gas production for the same reason, while analysts warned Kuwait and the United Arab Emirates could also be forced to curb supply if bottlenecks endured. Jet fuel exports from Saudi Arabia, Qatar, the United Arab Emirates, Kuwait, Bahrain and Oman collapsed from about 19.6 million barrels in February to only 4.1 million barrels for March and the first part of April combined, tightening aviation fuel markets at a time when airlines were already facing route disruption across the region.
Refining and logistics have become the next fault lines. The IEA said Middle East and feedstock-constrained refineries in Asia cut runs by around 6 million barrels a day in April, while global crude runs are now expected to decline by 1 million barrels a day on average in 2026. Only Saudi Arabia and the United Arab Emirates have meaningful bypass routes that could divert exports away from Hormuz, and even those alternatives amount to just 3.5 to 5.5 million barrels a day of spare capacity, far short of the nearly 20 million barrels a day usually moving through the strait. That mismatch explains why reopening the waterway, even partially, does not mean an immediate return to normal trade.
The broader economic hit is now feeding into demand forecasts. The US Energy Information Administration has cut its estimate for 2026 global oil demand growth to 0.6 million barrels a day from 1.2 million, citing fuel shortages, lower product exports and weaker consumption concentrated in Asia, which is most exposed to Middle East crude. Citi said on April 20 that global crude and product inventories could still fall by about 900 million barrels even if Washington and Tehran extend their ceasefire this week and both Hormuz flows and oil production recover by the end of June. Under a more prolonged disruption, the bank sees inventory losses rising to 1.3 billion barrels.
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