The global oil market is facing new challenges as navigation through the Strait of Hormuz continues to be disrupted. The repercussions of the US-Israeli conflict with Iran are no longer limited to rising prices; they are beginning to impact the future of global oil demand and petroleum products.
Estimates from traders and energy institutions, as reported by Bloomberg and Reuters, indicate that ongoing supply disruptions could lead to a decline in global consumption, not due to a voluntary shift in energy usage patterns, but rather because of rising prices and shortages of certain products, alongside a slowdown in economic activity in the transportation, industrial, and aviation sectors.
Details of the Situation
Before the outbreak of the war, the Strait of Hormuz transported about one-fifth of global oil flows, but navigation through it remains effectively blocked amid ongoing tensions and stalled efforts to reopen it safely and sustainably. Oil prices recorded strong weekly gains, with Brent crude settling at $105.33 per barrel, up 0.3%, while West Texas Intermediate (WTI) fell to $94.40 per barrel. Over the past week, Brent rose by approximately 16%, and US crude increased by 13%.
The price movements reflect a sharp state of anticipation in the market between the possibility of continued supply disruptions on one hand and the potential resumption of talks between the US and Iran on the other. Reuters reported that prices surrendered some of their gains following news of diplomatic moves, including the arrival of Iranian Foreign Minister Abbas Araqchi in Islamabad to discuss proposals for resuming war cessation talks.
Background & Context
Concerns have heightened following Iran's release of footage showing special forces personnel boarding a cargo ship in the strait, highlighting the difficulty of restoring normal navigation amid ongoing military and political confrontations. The severity of the crisis is not limited to rising oil prices; the market may enter a phase where demand must decline to align with the available supply, especially if consuming countries continue to rely on inventories to compensate for shortages.
Bloomberg notes that the impact of the closure has begun in less visible sectors to consumers, such as petrochemicals in Asia and some shipments of liquefied petroleum gas, before gradually extending to markets more connected to daily life, such as gasoline, diesel, and jet fuel.
Impact & Consequences
Reports predict that global oil demand could register its largest monthly decline in five years, with traders estimating that the loss in demand could reach several million barrels per day if the crisis persists. This does not imply that consumers and businesses are voluntarily forgoing oil; rather, rising prices and product shortages are prompting reductions in travel, cuts in the operation of some factories, and a contraction in transportation activities.
Diesel is one of the most sensitive products at this stage, as it is essential for operating trucks, heavy machinery, agriculture, and construction. If pressures extend widely to diesel, the decline in demand could signal a deeper economic slowdown.
Regional Significance
The war is also exacerbating inflationary pressures in energy-consuming economies, as a University of Michigan survey showed a drop in American consumer confidence to an unprecedented low. Additionally, American consumers' inflation expectations for the coming year rose to 4.7%, increasing the likelihood that rising energy costs will pressure consumption in other sectors.
Italian energy group Eni anticipates that the effects of the war on Iran on energy prices will be greater and more sustainable than currently believed, as it raised its estimates for Brent crude prices in 2026. However, reopening the Strait of Hormuz does not mean that the oil market will immediately return to previous levels, as recovery depends on the integrity of infrastructure and the availability of tankers.