Since mid-July 2026, the escalation of the US-Iran conflict has led to a second blockade of the Strait of Hormuz, with Brent crude prices rapidly approaching the $100 per barrel mark. According to Huatai Securities, unlike the first blockade from March to May, the global energy market's "buffer" has been largely depleted, making this shock potentially more severe than the last.
In a research report released on July 24, Huatai Securities noted that with the US Strategic Petroleum Reserve (SPR) dropping to its lowest level since 1983, attacks on diversion routes in the Red Sea and Gulf of Oman, and the actual destruction of Russian refineries due to the Russia-Ukraine conflict, the current static crude oil supply deficit has surged to 5.5-6 million barrels per day, representing 5-6% of global demand.
More critically, the crisis is rapidly spilling over from crude oil to refined products (diesel/jet fuel), key industrial gases (helium), and agricultural products (fertilizers).
Why the First Blockade's Impact Was Lower Than Expected: Three Buffer Mechanisms Combined Forces
To grasp the severity of the current situation, it is essential to first review why oil prices remained relatively restrained during the initial blockade. After the US-Iran conflict erupted in late February 2026, traffic through the Strait of Hormuz collapsed, falling to just 1.1 million barrels per day by May (about 7% of pre-conflict levels). Yet oil prices did not spiral out of control, thanks to three simultaneous buffers. First, alternative supply stepped in on a massive scale. Saudi Arabia and the UAE diverted some crude through the Red Sea alternative route, averaging 4.5-5 million barrels per day from March to May. Exports from the Atlantic Basin (the US, Brazil, Canada, Kazakhstan, and Venezuela) increased by about 3.5 million barrels per day starting in February. Transshipment through the Gulf of Oman reached 1.4-1.5 million barrels per day in June. Combined, these three routes added about 9-9.5 million barrels per day of supply from inside and outside the Gulf, offsetting roughly 60% of the strait's supply gap. Second, inventory releases provided a safety net. Since IEA member states announced the release of petroleum reserves on March 11, they had already released 290 million barrels to the market by July 21, about 70% of the planned strategic reserve release. This inventory covered approximately 3 million barrels per day of the gap. Combined with expectations that the strait would soon reopen, microeconomic actors preferred to use inventory rather than hoard oil, creating a substantial buffer. Third, demand-side flexibility acted as a natural shock absorber. China's gasoline consumption fell by 9.4% year-on-year in June 2026, with new energy vehicles estimated to replace about 300,000 barrels per day of global gasoline demand. In Europe, new energy vehicle sales growth remained high at 31% from January to May, showing a clear trend of electricity replacing transport energy. The accelerating energy transition made the demand-side flexibility buffer more ample than during any previous crisis.
Second Blockade: All Three Buffers Weakened, Supply Vulnerability Sharply Increased
However, entering the second blockade after July 8, Huatai Securities believes these three buffer mechanisms have systematically weakened. First, the inventory buffer has been significantly depleted. By mid-July, the US SPR had fallen to about 311 million barrels, a cumulative decrease of about 104 million barrels since the conflict began, its lowest level since 1983. The US Department of Energy has indicated a potential shift from releasing inventory to replenishing it over the next year. According to the original plan, the remaining releasable volume was about 60-70 million barrels, with a daily release capacity of about 1 million barrels per day. As the plan nears its end, this marginal buffer will notably diminish. Meanwhile, total OECD commercial inventories are rapidly declining, with inventories in Japan and Southeast Asia also at historical lows. Second, alternative diversion routes are being obstructed. According to CCTV News, the Houthi group declared a maritime blockade on Saudi Arabia on July 20, and a tanker was struck by a projectile in the Red Sea off the Saudi coast on July 23. Iran has intensified control over the sea near Oman, and the UAE's previous transshipment of 1.4 million barrels per day through Oman has significantly decreased. The Oman Maritime Security Center reported on July 14 that three tankers were attacked off the coast of Oman, leaving three crew members missing and six injured. In June, the Red Sea and Gulf of Oman together carried nearly 5 million barrels per day more than before the conflict, a buffer that is being rapidly eroded. Third, production growth in non-Gulf countries is slowing, and the energy dimension of the Russia-Ukraine conflict is adding fuel to the fire. Russia's crude oil output in June was about 8.9 million barrels per day, about 900,000 barrels per day below its implied OPEC+ target. Ukraine has persistently struck Russian energy infrastructure with medium-to-long-range drones, hitting over 16 major refineries and impacting more than 30% of Russia's refining capacity, about 2 million barrels per day. US crude oil exports had fallen to about 3.8-4 million barrels per day by mid-July, down about 500,000-700,000 barrels per day from the May peak. Considering these factors, Huatai Securities estimates that between July 8 and 20, the offset of the strait's supply gap by combined supply increments from the strait, Red Sea, Gulf of Oman, and non-Gulf countries had fallen from about 80% in June to about 60%, expanding the static supply deficit to 5.5-6 million barrels per day.
Crisis Spillover: Refined Products, Helium, and Agricultural Products Face Supply Disruption Risks
The shock from this crisis is not limited to crude oil but spreads downstream and across sectors through the supply chain, creating a multi-point shortage crisis. Refined products (diesel/jet fuel) face extreme scarcity. Attacks and logistical disruptions in the Middle East have caused a loss of about 3 million barrels per day of refining capacity, combined with Russia's actual decline of 1.5-2 million barrels per day, leading to a total global loss of about 5 million barrels per day of refining capacity (about 5% of global total). Russia has fully banned diesel exports, and diesel prices in Europe, the US, and Asia are surging simultaneously. Meanwhile, US gasoline inventories have fallen below the seasonal low for the past five years, and a vengeful inventory replenishment during the peak season could trigger at any time. The supply chain for critical raw materials like helium is in jeopardy. Helium is irreplaceable in semiconductor manufacturing and medical applications. Global helium supply is heavily dependent on the US (44%), Qatar (34%), and Russia (10%). The Middle East conflict has disrupted production in Qatar, while the US and Europe have sanctioned Russian helium, creating extreme tightness in the global supply chain. The risk of agricultural inflation is soaring. Fertilizers are a direct victim of the energy crisis. Since February, urea prices have surged by about 55%, hitting their highest level since October 2022. Russia has suspended fertilizer exports (affecting 25% of global ammonium nitrate supply). With the Northern Hemisphere's pre-planting season approaching, risks of reduced crop yields and soaring prices are magnifying simultaneously.
Meanwhile, Huatai Securities believes the prolonged "tug-of-war" between the US and Iran is fundamentally worsening the balance between global growth and inflation. Stagflation is severely damaging the macroeconomic landscape. Since the conflict began, the average price of Brent crude has risen about 41.8% year-on-year. The IMF has sharply raised its global inflation forecast for 2026 by 1 percentage point to 4.7% and downgraded its global economic growth forecast to 3.0%. Emerging Asian markets are facing a "double whammy." Asian economies with high energy import dependence are being hit hard by both rising international oil prices and weakening domestic currencies. Since the conflict began, the Japanese yen (-4.5%), South Korean won (-3.4%), and Indian rupee (-6.1%) have all depreciated, sharply increasing imported inflationary pressures.
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