Oil Prices Surge as Hormuz Strait Tensions Disrupt Supply Outlook

The global oil market has once again entered a phase of unpredictability. Before the US-Iran conflict reignited, the market had begun to believe that price pressures would ease in the second half of the year. Production was expected to rise, Gulf exports were resuming, and the world was moving towards a supply surplus. That scenario has now been upended. The most critical variable has shifted back to the security of distribution. The Strait of Hormuz, a narrow waterway roughly 33 kilometres wide, is the primary exit point for oil from Saudi Arabia, Iraq, Kuwait, the UAE, and Iran. Nearly a quarter of the world’s oil trade depends on this corridor, and even minor disruptions force the market to reprice risk. Oil prices surged on Tuesday, 14 July 2026, with Brent crude climbing 1.72% to US$84.73 per barrel and WTI rising 1.5% to US$79.34 per barrel. By Wednesday, Brent had strengthened further to US$85.74. The rally was not driven by a physical loss of production but by a sharp increase in the risk premium as commercial shipping faces renewed threats. Data from MarineTraffic showed only 57 vessels transited the Strait of Hormuz between Friday and Sunday, a drop of more than half compared to the previous week. Before the conflict escalated in late February, the daily average was around 130 ships. Attacks on two tankers have prompted shipping companies to delay voyages or reroute vessels, lengthening the time needed for oil to reach consumers. This reverses a brief recovery seen in June, when the International Energy Agency (IEA) reported that global oil supply had risen by 4.1 million barrels per day to 98.8 million bpd as previously stranded tankers left the Gulf. Regional exports jumped by 6.5 million bpd to 16.1 million bpd, partly due to the release of oil held in floating and onshore storage. However, these figures remain far below pre-conflict levels, when Gulf exports averaged around 24 million bpd. The IEA also noted that the recovery was concentrated in crude oil, not refined products, as major Middle Eastern refineries are not yet fully operational. Simultaneously, attacks on Russian refinery infrastructure have kept global diesel and petrol supplies tight, pushing refining margins to a four-year high in early July. On the demand side, the IEA expects consumption to recover after hitting a low point in May 2026, supported by the northern hemisphere summer driving season. Nevertheless, the agency still forecasts that total oil consumption for 2026 will be about 1 million bpd lower than the previous year. The direction of oil prices is no longer determined by the balance of supply and demand but by the ability of tankers to safely navigate the Strait of Hormuz. As long as the waterway remains under the shadow of conflict, assumptions of a supply surplus will remain fragile. Projections for oil prices are increasingly divergent. Goldman Sachs has warned that weakening demand in China and Europe poses a significant risk, potentially cutting global consumption by up to 2 million bpd and pushing Brent prices US$10 below its year-end target of US$90. In contrast, Barclays maintains a bullish outlook, arguing that the supply disruption risk from the Iran conflict remains the dominant factor driving prices higher.