Key Takeaways
- Oil exports through the Strait of Hormuz have recovered to an estimated 85–90% of pre-conflict volumes, but prices remain elevated.
- Supply-chain disruption, inventory rebuilding and renewed attacks on shipping continue to prevent a decisive normalisation in the oil market.
- Uncertainty surrounding Iran and the Russia–Ukraine war leaves energy supplies exposed to further interruptions and geopolitical risk.
- Constrained global refining capacity is keeping diesel and other refined-product prices high even as crude flows improve.
- For investors, stronger physical supply is encouraging, but persistent bottlenecks and security risks are likely to sustain volatility and a substantial risk premium.
Oil markets have received some comparatively encouraging signals from the Middle East, but the improvement in physical supply has yet to translate into a decisive fall in prices. Shipping traffic through the Strait of Hormuz increased during September, with both visible and less readily tracked transits moving higher. Flows have recovered to an estimated 85–90% of pre-conflict volumes, helping to contain further upward pressure on crude prices.
However, restoring crude flows is only part of the challenge. Supply chains remain disrupted, while the rebuilding of inventories is sustaining demand. As a result, the recovery in exports has not produced a commensurate decline in oil prices. Renewed attacks on shipping in October, together with the first US retaliation over the weekend, also underline that the route back to normality is unlikely to be smooth.
The underlying dispute remains unresolved. Iran is seeking to impose its own terms on traffic through the Strait of Hormuz, while the US is pushing back. Although the increase in shipping volumes offers a plausible pathway towards more normal conditions, the recent escalation demonstrates that the risk of interruption remains material. The possibility of further US military action also means that investors cannot discount a renewed broadening of the conflict.
Developments in the Russia–Ukraine war add a second source of uncertainty. Reports of a potential ceasefire covering energy infrastructure would, if implemented, be constructive. Russia’s refining network has sustained significant damage from Ukrainian attacks, constraining the supply of refined products. Yet the latest reports appear to have surprised Ukraine, have not been confirmed by Russia and follow similar headlines in September that ultimately led nowhere. For markets, this argues for caution rather than an assumption of imminent relief.
The distinction between crude oil and refined products is particularly important. Pressure on refining capacity leaves diesel prices substantially higher relative to crude. US refineries are operating close to their limits, European capacity is constrained, Russian utilisation has fallen sharply and Middle Eastern refining remains disrupted by the conflict. Even if crude supply improves, bottlenecks in the refining system could keep diesel and other product prices elevated.
For the US administration, that creates an immediate political and economic challenge ahead of the midterm elections. Measures intended to ease the burden on consumers may provide some support, but they are unlikely to lower diesel prices materially in the near term. More broadly, the pressure is not confined to transport fuels. Continued disruption also affects liquefied natural gas, sulphur, fertiliser and other products that depend on secure regional trade routes.
Politically, the situation still resembles a stalemate. Negotiations may create scope for de-escalation, but Iran appears prepared to absorb economic pressure and pursue a longer-term strategy. The regime remains in place and has shown little willingness to concede on the negotiating positions discussed earlier in the year. That limits the prospect of a rapid diplomatic resolution and leaves energy markets exposed to further bouts of volatility.
The central message is that better shipping data should not be mistaken for a complete solution. Higher transit volumes through the Strait of Hormuz are a positive development, but fragile security, limited refining capacity and persistent geopolitical risk are likely to keep oil and refined-product prices elevated. At the same time, the global economy’s resilience and ability to adapt over the past two months have been encouraging. Markets may therefore continue to balance improving physical supply against a still-substantial risk premium.
