Conflict between the US and Iran has reignited, putting the Strait of Hormuz in renewed peril, and this time, the global oil market has no safety net left. Brent crude futures have surged over 10% this week, briefly surpassing $87 per barrel to hit a more than one-month high. Reports indicate the US administration has notified Israel of increased air power deployment to the region, suggesting a potential escalation of strikes against Iran as soon as this weekend. Concurrently, the US military has conducted an eighth consecutive night of airstrikes on Iran. Iran's Supreme Leader has emphasized that the US will receive an "unforgettable lesson," while an Iranian deputy foreign minister announced the suspension of a key US-Iran understanding. Multiple energy traders have warned that supply disruptions from this conflict will be far more severe than the last, as strategic and commercial inventories previously used to buffer such shocks have been nearly depleted in earlier crises. "We have exhausted all cushions, all of them. They are all gone now," one trader stated bluntly.
Military Escalation Persists with No Signs of Backing Down
The US Central Command announced a new round of airstrikes against Iran, aimed at "further degrading Iran's ability to threaten shipping in the Strait of Hormuz and swiftly punishing" recent attacks. Reports state that two US service members were killed and several others were injured or missing following an attack involving Iranian ballistic missiles and drones in Jordan. Since late February, US military fatalities in the region have risen to 16, with over 400 injured. US officials assess that Iran has launched multiple attacks on a base in Jordan over five days, damaging aircraft and demonstrating that Iranian forces retain significant missile inventories and improved capabilities to evade US air defenses. Iran's Revolutionary Guards claimed to have destroyed several aircraft at a specific airbase. Iran's Supreme Leader declared that repeated US violations of agreements prove the US President's signature is "worthless and invalid," warning that US attempts to provoke war "will incur a heavier cost." An Iranian deputy foreign minister stated Iran has halted compliance with the understanding, suggesting the US should "choose other solutions if they are wise."
Strait of Hormuz Nears Paralysis, Shipping Data Deteriorates Sharply
Analyst Henri Patricot noted in a daily tracking report that the situation in the Strait has further escalated, with the number of oil and gas tanker transits plummeting to just one. The daily average for July is around 10 vessels, a significant drop from over a dozen in late June/early July and far below the approximately 50 per day seen in February. In terms of cargo flow, the average daily outflows for July so far stand at about 5.4 million barrels of oil equivalent, compared to 3.7 million in June and 1.3 million in May. Crude loadings from Gulf ports (excluding Iran) plunged to 1.0 million barrels per day on Wednesday from 6.0 million the previous day. The weekly average of 3.2 million barrels per day is below July's average of 5.1 million. The report also noted small declines in loadings from ports outside the Strait, such as Saudi Arabia's Yanbu and the UAE's Fujairah. Patricot concluded that as the US and Iran spiral into escalation, the path to normalizing Strait flows has been disrupted, and "any sustained reopening has been postponed."
Buffer Inventories Depleted, No Escape from Supply Crisis
The International Energy Agency (IEA) disclosed that member countries have released about three-quarters of the emergency stockpile of 400 million barrels announced in March, meaning this buffer source has only a few weeks of supply remaining. Amrita Sen, founder of Energy Aspects, pointed out that before the US-Iran conflict, the global oil market held around 400 million barrels of excess inventory, excluding government strategic reserves. "And now we have almost nothing... Market complacency on Hormuz flows is being severely tested." Data shows fuel markets have tightened significantly, with ICE gasoil cracks at record highs and Nymex heating oil cracks at their strongest since March. Analysts warn that during the previous crisis, record strategic stockpile releases by Western nations and reduced imports and inventory drawdowns by China helped cap Brent's peak at $126 per barrel, well below historical highs. For this shock, however, few such tools remain available. Joel Hancock, an analyst at Natixis, wrote in a report: "Ultimately, the market had been pricing in an optimistic flow trajectory, and that trajectory is now clearly off the table, at least until a new round of diplomatic efforts emerges."
Refined Product Markets Also Under Pressure, Impacting Consumers
Beyond crude oil, refined product markets are also under significant strain. Since the outbreak of hostilities, European wholesale diesel futures have risen 14% this week. Retail gasoline and diesel prices are rising quickly and falling slowly, with consumers already feeling the impact. The IEA warned of potential tightness risks in gasoline and diesel markets. Furthermore, Russia's diesel exports have been impaired following Ukrainian drone strikes on its refining system, further squeezing global diesel supply. Countries like Turkey and Brazil, which previously purchased Russian diesel, are now forced to compete with Western nations for alternative supplies.
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