Global Oil Below $100 Despite Hormuz Blockade: Key Reasons

The global oil market is currently navigating an unprecedented period of volatility, with crude prices surprisingly remaining below $100 a barrel, despite what many analysts are calling the 'biggest supply shock in history'. This defiance of earlier grim forecasts, which anticipated prices soaring to $200 a barrel or higher, is the central theme of a recent article by The Economic Times, published on June 06, 2026. The significant supply disruption stems from the effective blockage of the Strait of Hormuz, a critical maritime chokepoint, amidst an escalating conflict between the United States and Iran, which commenced in late February 2026. The Strait of Hormuz, a narrow waterway between Iran and the Arabian Peninsula, is crucial for global oil trade, with approximately one-fifth of the world's seaborne oil passing through it. Its effective closure has led to a substantial reduction in Middle Eastern oil supply, estimated at over 10 million barrels per day (b/d), and in some assessments, as much as 14 million b/d, representing about 14% of projected 2026 global supply. Some sources even suggest the disruption is on the order of 20% of global oil supply. Historically, warnings about the closure of the Strait of Hormuz have consistently pointed to a potential global economic catastrophe. However, the actual impact on crude prices has been mitigated by a confluence of factors. One primary reason for oil's unexpected stability is the **record volume of US oil exports**. The United States has emerged as a crucial 'swing supplier' in the global market since initiating strikes on Iran in late February. American crude and fuel exports in May 2026 were more than 2 million barrels a day higher than the average for the entirety of last year, effectively helping to offset a significant portion of the lost supplies from the Middle East. Concurrently, a **sharp and unexpected slowdown in Chinese oil demand** has played a vital role. China, the world's largest crude importer, drastically cut its inbound shipments by almost 40% in May 2026 compared to last year's average, according to data from Vortexa Ltd. This reduction in demand is partly attributed to China halting the expansion of its massive strategic oil stockpile, which had grown considerably in recent years. Additionally, China's pivot towards producing chemicals from raw materials like coal instead of oil has further curtailed its crude consumption. The decline in Chinese demand alone is estimated to offset anywhere between one-third and one-fifth of the barrels lost due to the conflict. Furthermore, **coordinated releases from strategic petroleum reserves (SPRs) by governments worldwide** have provided a significant buffer against the supply shock. The US administration, for instance, pledged to release 172 million barrels from its Strategic Petroleum Reserve as part of a broader, concerted effort by advanced economies to stabilize markets. These releases have been implemented at a rapid pace, with the US stockpile declining by as much as 1.4 million barrels a day in one week during May. The International Energy Agency (IEA) also announced emergency releases, with Germany agreeing to release approximately 2.5 million tonnes of oil from its strategic stocks under a larger initiative. Studies have shown that SPR releases can lower oil prices, providing meaningful benefits to consumers. **Alternative shipping routes and continued, albeit often opaque, movements of crude** have also contributed to maintaining supply flows. While the Strait of Hormuz remains effectively blocked, Gulf producers have rerouted some shipments through other export channels. Moreover, some tankers have continued to transport cargoes via the Strait despite the inherent risks, employing increasingly discreet methods to circumvent military threats. Finally, a **pre-existing global oil surplus** before the onset of the US-Iran conflict helped absorb the initial blow. Markets had also anticipated and priced in some level of geopolitical risk and military escalation, which cushioned the immediate price impact. Despite these mitigating factors, the situation remains precarious. Global oil inventories are drawing down at an accelerated pace, leaving the market increasingly susceptible to further disruptions. With spare supplies dwindling, even minor outages could trigger severe price spikes. While crude oil prices have remained below $100, the conflict has had a more pronounced impact on refined products like diesel and jet fuel, which have seen significantly higher year-over-year price increases compared to gasoline. This is partly because Middle Eastern crude yields more of these products, and the region supplied a substantial portion of seaborne jet fuel before the conflict. For India, a major oil importer, the stability in global crude prices is crucial. However, the ongoing West Asia crisis is still exerting upward pressure on fuel prices, impacting household budgets. The IEA and OPEC continue to monitor and forecast global oil demand and supply trends, with expectations of a gradual rebalancing once shipping through the Strait of Hormuz resumes. However, the timeline for such a resolution remains the biggest wild card for the global economy.

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