Even as tensions in the Middle East show signs of easing, global oil prices are unlikely to return to pre-conflict levels. Governments worldwide are now racing to build up their strategic petroleum reserves, a wave of restocking that is expected to keep the oil market in a state of relative tightness for the long term.
Oil prices remain elevated and have experienced sharp volatility recently due to renewed threats to a ceasefire agreement. According to a recent report, even if a final peace deal is reached, approximately 100 million barrels of crude oil remain backed up awaiting shipment through the Strait of Hormuz. It will take time for shipping and insurance industries to normalize transit, meaning supply pressures are unlikely to dissipate in the short term.
A more profound impact stems from the demand side. Several Asian nations, including Pakistan, the Philippines, Indonesia, and India, are accelerating efforts to establish or expand their strategic petroleum reserves. Japan has gone a step further, announcing $10 billion in aid to support Asian countries in building oil storage infrastructure.
Analysts believe this wave of restocking will keep global oil inventories at levels persistently higher than before the conflict, thereby providing ongoing support for oil prices.
Significant Supply Gap, Long Road to Replenishment
The supply gap left by this energy shock is substantial.
According to data, the drawdown of crude and refined product inventories outside the Persian Gulf would require nearly 500 million barrels to refill. Furthermore, each additional day the Strait of Hormuz remains closed adds another 5.8 million barrels to that figure. Even if the market were to magically see a daily surplus of 1 million barrels, it would take over a year for global inventories to recover to pre-conflict levels.
The International Energy Agency (IEA) anticipates that even if the Strait reopens this month, the oil market will remain in a supply deficit until the fourth quarter of this year. Only then might a small surplus emerge, allowing the rapidly depleted inventories around the world to begin their recovery.
The CEO of Abu Dhabi National Oil Company stated that restoring traffic through the Strait to 80% of pre-conflict levels would take four months, with a full recovery not expected until the first or second quarter of 2027. Saudi Aramco has provided a similar timeline.
Uneven Production Recovery, Technical Hurdles for Some Producers
In terms of production capacity, the situation varies among oil-producing nations.
Saudi Arabia and the United Arab Emirates possess spare capacity, allowing them to increase output relatively quickly. The UAE, having left the Organization of the Petroleum Exporting Countries (OPEC) last month, is no longer bound by production quotas and can freely expand its extraction.
In contrast, the recovery process for Iraq and Kuwait is expected to be slower. Both countries rely heavily on foreign oilfield service companies and face technical challenges and higher time costs associated with re-pressurizing aging, low-pressure wells.
Rick Bandazian, a trader and founder of the analysis platform Offsides Macro, remarked, "I think we're at a pretty critical juncture." Data he tracks on WTI futures shows that oil traders are still broadly betting on further price increases, though the aggressiveness of these long positions is below the peak seen in mid-March.
Nations Compete to Build Reserves, Asia Emerges as Key Restocking Battleground
This energy shock is profoundly altering national energy security strategies, with restocking actions particularly concentrated in Asia.
Pakistan, which previously had no strategic petroleum reserve, now plans to establish its first reserve system. It intends to invite international oil producers to build a new "energy city" near the Port of Qasim in Karachi to establish commercial stockpiles.
The Philippines is similarly establishing its first strategic petroleum reserve plan. The Indonesian government has announced it will build new storage facilities to expand inventories, and India is also increasing its reserve capacity.
Japan is taking a more proactive regional approach, pledging $10 billion in financial assistance to support Asian countries in constructing oil storage facilities and building inventories.
Kevin Book, co-founder of energy consultancy ClearView Energy Partners, noted, "Importing governments are asking one question: 'What do we do to make sure this doesn't happen again?'"
Energy Transition Accelerates, But Oil's Dominance Hard to Dislodge Short-Term
This crisis is also accelerating a re-evaluation of energy mixes in various countries.
EU ministerial officials are discussing whether to expand regional oil and gas production—a topic that would have been nearly unthinkable just a few years ago.
Simultaneously, cost-effective Chinese electric vehicles and solar panels are providing more options for countries hoping to reduce their dependence on fossil fuel imports. Data from the think tank Ember shows that 50 countries set new records for imports of Chinese solar modules in March of this year.
Historical precedent suggests that energy shocks often trigger profound structural shifts.
The two oil crises of the 1970s forced the United States to vigorously promote energy efficiency and shift towards alternative energy. Today, oil accounts for only about 1% of U.S. electricity generation, compared to nearly one-fifth in the early 1970s.
However, a true energy transition takes time. Until then, expanding inventories and ensuring supply security remain the overwhelming priority for governments. This imperative will be the core logic supporting higher oil prices for an extended period.
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