By Rareview Energydesk
The oil market is confronting one of its most severe supply disruptions in years, yet crude prices have so far defied the more dramatic forecasts of a return to $120 or even higher.
For much of the latest escalation in the U.S.-Iran conflict, Brent crude remained below the psychologically important $100-a-barrel threshold, despite a sharp reduction in Middle East exports and growing risks around the Strait of Hormuz and the Red Sea.
That resilience, however, is beginning to look less certain. Brent moved above $100 this week as attacks on shipping and energy infrastructure intensified, while concerns over prolonged disruption pushed the market towards a fresh supply squeeze.
At the heart of the puzzle is the Strait of Hormuz, through which a substantial portion of the world’s seaborne oil normally passes.
According to data cited by Reuters from Argus, Middle East oil shipments have fallen to about 11 million barrels per day (bpd), from roughly 18 million bpd before the war began. Yet the market has not experienced an equivalent price shock.
One explanation is that oil has not stopped moving altogether.
Rystad Energy estimates that as much as 8 million to 9 million bpd was flowing through Hormuz in the week before fighting intensified again on August 30. Although flows subsequently fell below 2 million bpd at times, the moving average remained around 4 million to 5 million bpd.
For an oil market accustomed to uninterrupted flows, that is a major disruption. But it is not the same as a complete closure of the waterway.
The industry is finding ways around the bottlenecks
Gulf producers have also been remarkably adaptive.
Saudi Arabia, the United Arab Emirates, Kuwait and Iraq have sought to maintain exports through alternative routes, ports and shipping arrangements. Saudi crude, for example, can move through the Red Sea via Yanbu, while Egyptian facilities such as Sidi Kerir have become increasingly important as alternative export outlets.
Sidi Kerir’s August exports rose to more than 2 million bpd, more than twice their June level, according to Kpler data cited by Reuters.
Ship-to-ship transfers and longer shipping routes are also helping to keep barrels moving. These alternatives come at a higher logistical and insurance cost, but they reduce the immediate physical shortage that would otherwise send crude prices sharply higher.
The result is an oil market that is tight, but not yet starved.
China is the other side of the equation
Perhaps the biggest reason prices have not exploded is weaker demand from China, the world’s largest oil importer.
China’s seaborne crude arrivals averaged only about 7.14 million bpd in August, according to Kpler data cited by Reuters, nearly 40 per cent below the 11.41 million bpd average recorded in the three months before the U.S.-Israeli attack on Iran.
Sinopec’s research arm has gone further, forecasting that Chinese oil demand will fall by about 600,000 bpd, or 3.9 per cent, in 2026. The decline would mark a third consecutive annual contraction.
China’s weaker appetite effectively provides a cushion to the rest of the market. Every barrel that Beijing does not compete for is another barrel available to other consumers.
But that cushion may not last indefinitely.
Kpler says China’s refinery runs are recovering and inventories are being drawn down. If Chinese refiners return aggressively to the international market while Middle East supplies remain constrained, the resulting competition for available crude could produce a much sharper price response.
Non-OPEC supply is buying the market time
Another stabilising factor is additional production outside the Middle East.
The United States, Canada and Guyana are expected to add about 1.4 million bpd to global production this year, according to Rystad estimates cited in the market analysis.
Russia, meanwhile, has continued exporting substantial volumes despite the wider geopolitical confrontation, although Moscow has lowered its 2026 production forecast to its lowest level in 17 years.
These supplies cannot fully replace lost Gulf barrels, but they help prevent the global market from falling immediately into an extreme deficit.
The physical market is sending a louder warning
The most worrying signal for consumers may not be Brent itself but the physical oil market and refined products.
Spot premiums for Middle East grades have surged, with Dubai and Oman cargoes commanding substantial premiums. Diesel markets have also tightened sharply, reflecting a shortage of refined products rather than simply crude.
Argus chief economist David Fyfe described the physical market as “incredibly tight”, pointing particularly to diesel.
That distinction matters. A market can absorb a temporary crude disruption through inventories, alternative supplies and weaker demand. But once inventories begin to fall too far and refiners struggle to secure feedstock, prices can move rapidly.
The International Energy Agency has now warned that global oil supply in 2026 could decline by 5.7 million bpd because of the continuing Middle East disruptions, while oil demand is also expected to fall. It says the balance will depend heavily on how quickly normal Gulf flows can resume.
The $100 question
The oil market’s recent behaviour therefore tells two stories.
The first is reassuring: supply chains have proved more flexible than feared. Alternative export routes, non-OPEC production, inventories and weaker Chinese demand have so far prevented the loss of Middle East barrels from becoming a full-blown global supply shock.
The second is less comfortable.
Those buffers are finite. If the conflict persists, Hormuz traffic remains depressed, Red Sea attacks continue and Chinese demand recovers, the market could quickly move from manageable tightness to a genuine shortage.
That is why banks are raising their forecasts. Goldman Sachs has warned that prolonged disruption could push Brent towards $120 a barrel under a more severe scenario, while Morgan Stanley expects Brent to average around $100 in the fourth quarter.
The lesson from the current crisis is therefore not that the oil market has escaped the consequences of war. Rather, it is that the market has so far been able to buy time.
How long that time lasts may depend less on the next headline from Washington or Tehran than on three things: how much oil can actually pass through Hormuz, how quickly alternative supplies can respond, and when China decides to return to the market in force.
For now, the world’s oil system remains resilient. But resilience should not be mistaken for abundance. The physical market is already warning that the margin for error is becoming dangerously thin.