Global Oil Buffers Are Thinning After the Middle East Shock
Global oil prices have fallen from their wartime highs, but the International Monetary Fund says the world energy system is less prepared for another disruption than it was before the Middle East conflict.
In a staff analysis published July 15, the IMF said more than 1.1 billion barrels of crude—about 10 days of typical global consumption—had not reached the market by the end of May after the Strait of Hormuz was effectively closed at the height of the shock.
The initial disruption was absorbed through three temporary shock absorbers: weaker demand, higher production outside the Gulf and large inventory drawdowns. That combination limited the price spike. It also left the system with less room to absorb another interruption.
How the market absorbed the first shock
The IMF described the disruption as one of the largest oil-market shocks in decades. The Strait normally carries about 20 million barrels a day of crude and oil products, while workarounds through Saudi Arabia and the United Arab Emirates can redirect only a fraction of those volumes.
Demand compression did much of the early adjustment, especially in Asia, as higher prices reduced consumption. The IMF also said production outside the Gulf rose by nearly 2 million barrels per day above 2025 levels, with the United States, Venezuela, Guyana and Russia among the contributors it identified.
Inventories supplied much of the remaining gap. The IMF said an estimated market deficit of about 4 million barrels per day during March through May was met almost entirely by drawing down global stocks, including commercial inventories in China and strategic reserves.
That response bought time, but it was not a permanent replacement for normal trade flows. Reserves can cover a shortfall for a limited period; they cannot by themselves restore refinery operations, shipping confidence, tanker insurance or inventories that have been consumed.
Crude recovered faster than fuel supplies
The International Energy Agency reported that global oil supply rebounded by 4.1 million barrels per day in June to 98.8 million barrels per day. Even after that increase, supply remained about 9.4 million barrels per day below pre-war levels.
The inventory data show the cost of the recovery. OECD stocks fell another 62 million barrels in June, including an estimated 44 million barrels from government stock releases. The IEA also reported a 41 million-barrel crude-stock draw in China.
Crude flows recovered faster than refined products. Gulf exports of refined products and liquefied petroleum gas remained below half of pre-war levels, while crude flows reached nearly three-quarters of their February levels. Middle East export refineries had not fully restarted, and global refinery runs remained below the previous year.
That helped push refined-product cracks and refinery margins to four-year highs in early July even as benchmark crude prices fell. The IEA said diesel and gasoline markets had tightened, while concerns about jet-fuel shortages had eased somewhat as refiners increased output.
The divergence matters because households and businesses consume fuels, not crude oil. Diesel affects freight, farming and food distribution. Jet fuel affects air travel. Gasoline and LPG prices can respond to refinery constraints, regional shortages and shipping costs even when a headline crude benchmark looks calmer.
Why Asian importers face greater exposure
The Strait of Hormuz carried an average of about 20 million barrels per day of crude and oil products in 2025—roughly a quarter of global seaborne oil trade. The IEA says about 80% of those flows were destined for Asia, with China, India and Japan among the main importers.
The waterway is also central to natural-gas markets. LNG exports from Qatar and the United Arab Emirates account for about 19% of global LNG trade and overwhelmingly transit the Strait, according to the IEA.
Alternative routes exist, but their capacity is limited. The IEA estimates that Saudi and Emirati pipelines could redirect about 3.5 million to 5.5 million barrels per day, far below the volumes normally moving through the chokepoint.
That exposure is uneven. The IMF says countries pay different import prices depending on oil type, distance, contracts and sanctions, while retail fuel pass-through varies with taxes, subsidies and regulation. Import-dependent economies with limited reserves or limited fiscal room may face shortages or sharper price increases sooner than wealthier countries.
What to watch next
Diplomatic developments have pushed oil prices lower, but the proposed U.S.-Iran arrangement remains tentative. The Associated Press reported on August 2 that President Donald Trump said he would order U.S. forces to hold off on new strikes after claiming that parameters had been reached for a possible deal. AP also reported attacks and shipping incidents in and around the Strait.
Those developments are not a completed peace agreement or a guarantee that tanker traffic has returned to normal. The IMF said shipping, insurance and operator confidence may take time to recover even after a reopening. The IEA’s outlook likewise depends on tanker flows improving enough for producers to restart fields and Middle Eastern refineries to resume product shipments.
The next indicators are tanker traffic through Hormuz, Gulf refinery restarts, government stock-release decisions, rebuilding of OECD inventories and the durability of any U.S.-Iran understanding. A renewed disruption could reach refined fuels and import-dependent economies faster because the first response has already consumed part of the system’s spare capacity.
For households and businesses, the effects would vary by country. Import reliance, subsidies, refinery configuration, currency conditions and available reserves will determine how quickly a new shock reaches gasoline, diesel, airfares, freight, food distribution and inflation. The central lesson is that lower crude prices do not necessarily mean the global energy system has returned to normal.
Sources
- International Monetary Fund oil-market analysis
- IEA Oil Market Report — July 2026
- Associated Press reporting on the proposed U.S.-Iran arrangement
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