The relatively modest jump in oil prices in the wake of the U.S.-Israel warwith Iran suggests investors are betting that the disruption to oil supplies from the Middle East will be short-lived. But that optimism may be misplaced.
While the region's oilfields have so far escaped damage by the third day of the conflict, the inability to ship fuel out of the Gulf is already straining a tightly interconnected global energy system. Every day of disruption compounds pressure on producers and consumers alike, creating bottlenecks for exporters in the Middle East and deepening shortages for buyers elsewhere.
Oil prices on Monday initially jumped more than 10% to above $82 a barrel, the highest in over a year, before easing back to around $79. The move followed extensive U.S. and Israeli air strikes on Iran over the weekend, which killed Supreme Leader Ali Khamenei and triggered retaliatory attacks on Israel and Gulf states, plunging the region into its gravest crisis in decades.
The fallout spread quickly to the oil sector. Tanker traffic through the Strait of Hormuz, the narrow waterway between Iran and Oman that carries nearly 20% of global oil supplies, all but ground to a halt after at least three vessels were struck.
Although the strait has not been formally closed, around 150 ships were stranded nearby on Monday as operators avoided entering the Gulf, fearing further attacks or the risk of being trapped inside.
Iran has also targeted ports and energy infrastructure across the region. Saudi Aramco (2222.SE) on Monday shut its largest domestic refinery, the 550,000-barrel-per-day (bpd) Ras Tanura plant, after a drone strike.
Qatar, the world’s second‑largest producer of liquefied natural gas, halted LNG output at its giant Ras Laffan facility following attacks. European benchmark gas prices surged by as much as nearly 50% on the news.
If this disruption lasts only a few days, the global oil market can likely absorb the blow. Global supply is relatively ample thanks to elevated production across the world, and several major consumers, including China and the U.S., could tap strategic reserves to cushion shortages and temper price spikes.
But if the conflict persists, the scale of the backlog could become daunting.
TIME IS RUNNING OUT
With the Strait of Hormuz effectively closed, the clock is ticking.
Roughly 15 million bpd of crude and more than 4 million bpd of refined products, including gasoline, diesel and jet fuel, normally leave the Middle East through the strait.
If the war isn’t wrapped up quickly, producers will soon be forced to divert crude into onshore storage once tankers fill up. While the region has extensive storage facilities, they can probably only accommodate several days of normal exports if flows remain blocked.
Saudi Arabia currently holds around 82 million barrels of crude oil in onshore storage, representing 56% of capacity, according to Augustin Prate, analyst at Kayrros. With production of 10 million bpd and exports of around 7 million bpd, the remaining storage could fill within 10 days.
Meanwhile, the United Arab Emirates and Kuwait have 34 million and 28 million barrels in storage, respectively, the equivalent of more than 40% of capacity in both cases, according to Prate.
Saudi Arabia may be able to ease some pressure by diverting exports to the Red Sea port of Yanbu via a pipeline that can carry around 5 million bpd.
The UAE also has a 1.5-million-bpd pipeline linking it to the Fujairah storage terminal located beyond the Strait of Hormuz.
But both pipelines are already in use, meaning their capacity to carry extra oil is probably limited.
The duration of the conflict remains the key unknown. U.S. President Donald Trump said over the weekend that military operations could last at least four weeks. The Republican president, who has pledged to fight the high cost of living at home, is likely to deploy every available tool - including the U.S. Navy - to keep oil prices in check by securing shipping lanes.
That effort, however, is far from guaranteed to succeed. Insurers and shipowners are likely to remain cautious long after any formal assurances, limiting flows even if naval escorts are in place.
The closure of the Strait of Hormuz has long been viewed as the energy market’s worst‑case scenario. The longer the route remains clogged, the greater the strain on Middle East producers, who could ultimately be forced to curtail output as storage fills up.
That, in turn, would transform what markets are currently treating as a temporary shock into a far more durable challenge for the global oil system.
(The opinions expressed here are those of the author, a columnist for Reuters)
Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn, and X.
And listen to the Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.
