Iran War Reshapes Global Oil Markets After Six Months

Six months after the Middle East war began on Feb. 28, oil markets remain exposed to a severe disruption in the Strait of Hormuz, with the International Energy Agency describing the conflict as the largest supply disruption in the history of the global oil market. The IEA’s August 2026 oil report said Gulf production rose to 23.9 million barrels per day in July but remained 8.3 million barrels per day below pre-war levels.

The U.S. Energy Information Administration said oil and petroleum-liquid flows through Hormuz averaged 4.9 million barrels per day in the second quarter of 2026, compared with 21.6 million barrels per day in the fourth quarter of 2025. That represents a reduction of about 77% from the pre-conflict level.

The disruption matters because Hormuz normally carries a large share of internationally traded oil. EIA data show the waterway handled 20.7 million barrels per day in 2024, equivalent to about 20% of global petroleum-liquids consumption, while available bypass pipelines can replace only part of that volume.

Oil Supply Losses Keep Prices Volatile

The conflict has produced sharp swings in crude prices as changes in shipping access alter expectations for physical supply. The EIA said Brent crude reached $118 a barrel on April 29 before falling to $72 on June 26 as diplomatic developments improved expectations for oil flows.

The IEA said North Sea Dated crude reached $105 a barrel on July 23 after renewed attacks and the breakdown of the mid-June U.S.-Iran ceasefire. By the time of its August report, the benchmark was trading around $92 a barrel, while the agency said the market remained highly sensitive to developments around Hormuz.

The supply shock has also affected inventories and refined products. The IEA said global observed oil stocks fell by 69 million barrels in July, equivalent to an average draw of 2.2 million barrels per day, while stocks at the end of July fell below 7.9 billion barrels for the first time since April 2025.

Europe Faces a Second Energy Shock

The disruption extends beyond crude because Hormuz is also a major route for liquefied natural gas. EIA data show LNG flows through the strait averaged 0.8 billion cubic feet per day in the second quarter of 2026, down from 7.4 billion cubic feet per day in the first quarter.

The IEA said product markets have tightened sharply as the conflict reduced regional supply. Atlantic Basin refining margins reached record levels in July, while global refinery crude throughput remained nearly 5 million barrels per day below the year-earlier level.

Europe has therefore faced simultaneous pressure from disrupted crude, refined-product and gas flows. The IEA said seaborne product trade fell by 3.8 million barrels per day year over year, while diesel exports from Russia, the Middle East and Asia were 1.3 million barrels per day lower than a year earlier.

Demand Is Also Adjusting to the War

The supply disruption has begun feeding into the demand outlook as higher energy costs reduce consumption. The IEA cut its forecast for second-half 2026 oil demand by about 550,000 barrels per day from its previous estimate, citing continued Hormuz disruption and reduced product availability.

The agency now expects global oil demand to decline by an average of 1.6 million barrels per day in 2026. It forecasts a 4.9 million-barrel-per-day contraction in second-quarter demand and a 2.8 million-barrel-per-day decline in the third quarter before demand returns to growth of 580,000 barrels per day in the fourth quarter.

The supply picture remains difficult but not permanently fixed. The EIA expects some shipping through Hormuz to resume in the third quarter and said it expects crude production and trade flows to move closer to pre-conflict levels by the end of 2026, although most previously shut-in production is not expected to return until the first quarter of 2027.

What Comes Next for Global Energy Markets

The immediate market risk remains the duration of the Hormuz disruption. The IEA said regional exports, including routes bypassing the strait, fell to 15 million barrels per day in July after reaching 20 million barrels per day at the start of the month, while an agreement allowing the waterway to reopen remained elusive.

Alternative infrastructure can cushion part of the shock but cannot replace the waterway completely. EIA estimates that Saudi Arabia’s East-West pipeline and the UAE’s Abu Dhabi pipeline together provide about 4.7 million barrels per day of capacity to bypass Hormuz, far below the 20.7 million barrels per day that passed through the strait in 2024.

The strongest positive signal for consumers would therefore be a sustained reopening of Hormuz and restoration of regional production. Official EIA forecasts indicate that increased global production and restored trade flows would put downward pressure on crude and gasoline prices, while the IEA’s latest data show that even a partial recovery in Gulf output is already rebuilding supply capacity.