Peace between the United States and Iran has broken down, and the price of Brent crude oil is rising. While prices are still well below previous wartime peaks, oil markets are once again under pressure—and things are almost certain to get worse.
During the first round of the war, oil prices never reached the calamitous levels predicted by some analysts. This seems to have taught the White House a flawed lesson: that the global oil system is more robust than the doomsayers claim and that a war over the world’s most important energy chokepoint can be fought without a significant energy crisis at home.
Peace between the United States and Iran has broken down, and the price of Brent crude oil is rising. While prices are still well below previous wartime peaks, oil markets are once again under pressure—and things are almost certain to get worse.
During the first round of the war, oil prices never reached the calamitous levels predicted by some analysts. This seems to have taught the White House a flawed lesson: that the global oil system is more robust than the doomsayers claim and that a war over the world’s most important energy chokepoint can be fought without a significant energy crisis at home.
But this is a dangerous misreading. The relative price stability of the market during the first half of 2026 rested on an inherited stock of buffers accumulated over decades: brimming inventories, untapped strategic reserves, insurance capacity, spare production, and a deep well of consumer tolerance. These are reservoirs, not renewable flows—and many of them have now been drained to a significant degree.
Now, resumed fighting, the reclosure of the Strait of Hormuz, and the Houthis’ maritime embargo against Saudi Arabia are forcing a renewed reckoning with the precarity of global oil stockpiles. With many of the critical shock absorbers expended, an escalation in oil prices will likely be much more rapid this time around.
When Iran first closed the Strait of Hormuz early in the war, the world held roughly 8.4 billion barrels of oil in storage, an unusually high cushion built up through two years of oversupply. However, that entire stockpile wasn’t necessarily available for withdrawal; according to J.P. Morgan, only about 800 million of those barrels could be accessed without pushing physical infrastructure—wells, pipelines, tankers, and refineries—into operational stress. By late April, roughly a third of that usable buffer had already been consumed, and the bank warned that if the situation persisted, inventories would hit critically low levels by September.
At the war’s start, the United States held some 414 million barrels in reserve. As part of a coordinated release by 32 countries, the largest in the history of the International Energy Agency (IEA), Washington committed to drawing significantly from those reserves. By mid-July, that number had fallen to 316 million, its lowest level since 1983. While that may still seem like a healthy amount, geological factors limit how much more can be withdrawn and at what pace. The U.S. Strategic Petroleum Reserve distribution system was built in the 1970s with a 25-year life cycle in mind. Government experts have expressed concern about the ability of its aging infrastructure to withstand increased pressure.
Numerous workarounds kept oil flowing from the Persian Gulf region during the previous round of conflict, providing another shock absorber. Between Saudi Arabia rerouting 5 million barrels a day through its Red Sea terminal, the United Arab Emirates boosting exports through the Port of Fujairah, leakage through the Strait of Hormuz, and increases in non-Gulf area production, a significant portion of the shortfall was compensated for.
But the extent to which Saudi production could be rerouted away from the Strait of Hormuz was already reaching its limit, and the Houthis’ Red Sea blockade on ships that call at Saudi ports make the distribution of Saudi oil even more complicated. The oil pumped out of Saudi Arabia’s Red Sea terminal heads south, through the Bab el-Mandeb, to Asian markets. If that route is closed, tankers will have to traverse the Mediterranean or go around Africa to reach their markets, which would more than double the voyages’ length, dramatically increase costs, and stress logistics networks, since a finite fleet of tankers would be able to make fewer individual journeys. The Houthis have not yet demanded the cessation of all commercial traffic through the strait, as they did during the 2023-25 Red Sea crisis—so for now, refined oil products and natural gas from Asia can still reach Europe through the Suez Canal. But conflict over control of the Bab el-Mandeb will make that extremely difficult, if not impossible, soon enough.
A third market buffer was a widespread reduction in demand, largely in Asia. Global demand fell by nearly 5 million barrels a day in response to higher energy prices. Some of this reflected genuine adaptation, as demonstrated by hybrid drivers increasingly opting for charging their cars, rather than refueling, in China. But much of it was rationing under duress, through factory shutdowns, fuel allocation, and tens of thousands of canceled flights.
These types of policies stifle normal business activity while drawing on government resources, which can sometimes weaken a country’s currency and result in higher consumer prices. These types of adaptations are only politically sustainable when citizens believe they are temporary. Although there have been protests over fuel costs in several Asian and European countries since the start of the war, the memorandum of understanding signed by the United States and Iran in June enabled governments to relax those policies before public dissatisfaction reached 2022 levels, when protests occurred in more than 90 countries. The most vulnerable countries are unlikely to be more prepared this time; a drawn-out conflict will further test global government stability.
The final safeguard, and one that seems particularly fragile now, was the psychology of the market. Oil prices are set according to near-month futures; through the spring, the market priced in the assumption that U.S. President Donald Trump, facing midterm elections this year and skittish equity markets, would fold before tolerating a prolonged shortage. Traders hedged with options rather than hoarding contracts, and Brent prices remained relatively contained even as the IEA recorded physical crude changing hands near $150 a barrel in April—far above screen prices. There was an acute disconnect between what oil cost and what the market believed the president would allow it to cost.
Last month, U.S. Vice President J.D. Vance expressed the administration’s desire for global stocks to be replenished during the MOU cease-fire period. But even before the war resumed, that goal was far from achieved. Stocks are continuing to fall through July as governments race to push prices down. And crossings through the Strait of Hormuz failed to recover to prewar levels due to a combination of factors, including uncertainty about the security regime, global tankers being out of position, and logistics operations taking time to come back online.
In restarting the war, Trump has shown that he is willing to endure the electoral cost of expensive gasoline. This undercuts the market’s assumption that, as he has done with global tariffs, Trump would back down when the market impact of his actions became too disruptive. If the market can’t count on Trump to always chicken out, traders could start panic-buying at much higher levels than occurred during the previous round of kinetic exchanges.
Even in the unlikely case that Brent prices remain manageable, or if diplomacy is suddenly resumed, the prices that matter most for consumers now aren’t necessarily of crude but of its products. The prices voters are experiencing are at the pump and in middle distillates such as diesel and jet fuel, which impact the price of food, basic goods, and transportation. The gap between the cost of crude and what consumers pay for oil products—what traders call the crack spread—has widened to its highest level in four years. Even as Brent drifted back toward prewar levels in early July, the cost of oil products was slow to drop, a sign that the market for finished fuels is far tighter than the headline oil price suggests.
There are a number of factors behind this. Export refineries in the Gulf that suspended operations during the war have yet to restart, partially taking offline a region that normally supplies diesel and jet fuel to much of Asia and Africa. Ukrainian strikes have cut deep into Russian refining, prompting Moscow to ban diesel exports and removing the world’s second-largest supplier of the fuel from the market. Unlike crude, finished fuels cannot be stockpiled at scale, since they degrade in storage. Product inventories in the developed world had already been significantly drained before the fighting in Iran resumed. The MOU period provided them little time to replenish.
The Trump administration is likely betting on two factors to avoid a critical global shortage: that the relative stability of oil prices means that concerns about price spikes are inherently overstated and that the sudden sharp drop in Chinese imports in the last month provides breathing room to test oil markets. The first assumption would be a misunderstanding of what kept oil prices in check before; the latter only buys Trump a short window of time. China is by far the world’s largest importer of crude, buying more than one-fifth of globally traded oil, and in June, it slashed its imports by 41 percent from the previous year. While the leftover inventory helped prevent a more ferocious bidding war at the time, there is already evidence that purchases are picking back up as the Chinese government seeks to increase its strategic stockpile.
The most immediate area of uncertainty is in the Bab el-Mandeb, which the global shipping and maritime insurance industry has ruled too hazardous for commercial operations. Oil prices have escalated since the Houthi announcement of a maritime embargo on Saudi shipping—but nowhere near panic levels, reflecting the market’s unpredictable psychology. But reserve depletion levels and escalating tensions imply that there are mere weeks before severe supply shortages arrive. Investors can take events in stride and hope for de-escalation in the short term. Ultimately, though, optimism cannot survive market realities.
The underlying vulnerability of global energy markets makes betting against a price shock perilous. The world survived the first closure of Hormuz by spending down an inheritance it took decades to accumulate and will take years to rebuild. Now, Trump is gambling with an empty tank.