The prospect of a renewed global oil shock has returned as escalating conflicts and disruptions across several major energy corridors place increasing strain on international oil markets. After briefly retreating following a ceasefire agreement between the United States and Iran, oil prices have climbed above $100 per barrel once again, driven by renewed military tensions and growing concerns over the resilience of global energy supplies.
The earlier easing in prices followed the 17 June agreement signed by US President Donald Trump and the government in Tehran, which promised an end to military hostilities and the reopening of the Strait of Hormuz. The deal pushed the price of Brent crude down from more than $100 per barrel to around $70. However, the renewed outbreak of conflict between the United States and Iran and the renewed closure of the Strait of Hormuz have reversed that trend, returning pressure to global energy markets.
Before the conflict resumed, approximately one-fifth of global oil demand passed through the Strait of Hormuz. The renewed disruption has been compounded by attacks on two additional strategic supply routes, increasing fears of a broader supply crisis.
In the Red Sea, Yemen’s Iran-backed Houthi movement has announced a naval blockade against Saudi Arabia and claimed responsibility for attacks on two Saudi oil tankers. The incidents have fuelled concerns that the Houthis could block the Bab al-Mandab Strait, the vital maritime passage linking the Red Sea with the Gulf of Aden and the Indian Ocean. Before the conflict involving Iran, around 12% of global oil demand passed through this route, which Saudi Arabia increasingly relied upon after the closure of Hormuz.
A third area of concern has emerged in the Black Sea, where Ukraine has intensified attacks on Russian energy infrastructure. As part of an ongoing drone campaign, Ukrainian forces targeted the Caspian Pipeline Consortium’s port facilities near Novorossiysk, through which roughly one-third of Russia’s oil exports are handled. Drone attacks also struck four separate oil tankers over four consecutive days, forcing loading operations to be suspended.
Although Russian oil has remained subject to sanctions imposed by the United States and its allies since Russia’s invasion of Ukraine four years ago, Moscow has continued exporting crude primarily to China and India using a so-called “shadow fleet” of tankers. Any reduction in those exports requires major buyers to seek alternative suppliers, increasing global competition for reduced supplies and placing further upward pressure on prices.
The supply disruptions are occurring at a time when global strategic oil reserves have fallen to their lowest levels in decades. According to the report, the world has avoided a severe oil crisis largely because governments released emergency reserves to stabilise markets following the initial disruption caused by the closure of the Strait of Hormuz.
The International Energy Agency (IEA), established by 16 industrialised countries after the oil crises of the 1970s, coordinated the largest emergency release of strategic oil stocks in its history. In March, the organisation announced that member countries would release up to 400 million barrels from reserves held under obligations requiring members to maintain stocks equivalent to 90 days of consumption.
The IEA reported last week that approximately three-quarters of those planned releases have already taken place. Although IEA Executive Director Fatih Birol has said that a further 1,000 million barrels remain available in an emergency, much of that oil is held by the United States, where the depletion of the Strategic Petroleum Reserve (SPR) has become the subject of growing political debate.
US strategic reserves have fallen to less than half their previous levels, the lowest since the presidency of Ronald Reagan. The decline also reflects releases authorised by the administration of Joe Biden in 2022 to offset the impact of Russia’s invasion of Ukraine on energy prices. Those reserves have not since been fully replenished, while repeated withdrawals and refilling of underground salt cavern storage facilities have also caused structural damage.
A report by the US Government Accountability Office found that operational problems, delayed maintenance and shifting salt caverns mean the Strategic Petroleum Reserve can now pump only around 60% of its original capacity when required. These technical constraints also mean that refilling the reserve is expected to take years, raising questions over whether another large-scale release could be undertaken if market conditions deteriorate further.
China also played a significant role in preventing the earlier disruption from becoming a full-scale global oil crisis. While Beijing did not release oil from state-controlled strategic reserves, it authorised companies to draw down their commercial stockpiles. Although the size of China’s reserves remains a state secret, experts estimate that combined government and commercial inventories total around 1,200 million barrels.
China also reduced imports by temporarily shutting down refineries, directing state-owned enterprises to meet demand from existing inventories and expanding the use of coal and renewable energy where possible. These measures enabled the world’s second-largest economy by GDP to halve crude oil imports within a short period. However, the report suggests that repeating those efforts would now be considerably more difficult because commercial inventories have not yet been replenished and alternative energy options have been largely exhausted.
The impact of higher energy prices has not been evenly distributed. While much attention has focused on Western economies and China, several Asian countries, including the Philippines, Thailand, Bangladesh and Myanmar, continue to experience severe economic consequences from the conflict involving Iran. In the Philippines, petrol prices have doubled while diesel prices have tripled. With oil once again trading above $100 per barrel, the report warns that millions of people risk falling into poverty.
At the same time, another emerging threat has attracted comparatively little attention. Ukrainian attacks have severely damaged Russian refineries, sharply reducing domestic production of refined fuels, particularly diesel. Waiting times at Russian petrol stations have reportedly reached up to 18 hours, while diesel production has declined significantly. In early July, Russia suspended diesel exports despite having recently ranked as the world’s second-largest diesel exporter after the United States. Russia is now importing diesel from India, creating additional pressures within global fuel markets.
The suspension of Russian diesel exports is expected to have wider consequences beyond the energy sector. Higher diesel prices could encourage refineries, particularly in the United States, to shift production away from petrol, placing upward pressure on petrol prices as well. Because diesel underpins around 90% of commercial transport worldwide, sustained increases are likely to feed through to the broader economy, including higher food prices. Russian farmers have already reported difficulties harvesting wheat because of fuel shortages, a development carrying additional significance given Russia’s position as the world’s largest wheat exporter.
