The oil industry has demonstrated significant resilience amid the largest energy supply shock in recent history, employing various strategies to mitigate the effects of the Iran war. However, without a breakthrough in peace negotiations, the global market may be just months away from a critical juncture. Since the onset of the Iran war and the subsequent closure of the Strait of Hormuz—previously a major route for over 20% of global oil and gas supplies—uncertainty has escalated in the world’s largest commodity market. Before the conflict began on February 28, few analysts expected Iran to actually shut down the Strait, let alone that the obstruction would last for months.
With peace initiatives stalling and the threat of increased military action still prominent, markets can no longer overlook the possibility that movement through Hormuz may remain limited for weeks to come.
Time is of the essence. The oil market likely has about three months before reduced supplies significantly impact inventory levels, pushing them to critical lows, prompting sharper price increases, and ultimately leading to demand destruction and broader economic repercussions.
MUDDLING THROUGH
The oil sector’s response to this unprecedented crisis, which has resulted in the loss of roughly 13 million barrels per day of supply, has been notably effective thus far. Countries reliant on imports, particularly in Asia, acted swiftly to secure alternative sources, primarily from the United States and Latin America. Traders and refiners have accessed inventories, while the International Energy Agency (IEA) organized a historical release of 400 million barrels from member states’ strategic reserves. Nevertheless, absorbing this shock has not come without repercussions. The IEA forecasts global oil demand will decline by 2.4 million barrels per day (bpd) in the second quarter compared to the previous year, equal to approximately 2.3% of pre-war consumption.
Crucially, these adjustments have led to a rapid depletion of inventories, which serve as the primary buffer against crises. According to data from the U.S. Energy Information Administration (EIA), global crude and fuel stockpiles decreased at a rate of 5.27 million bpd in March, accelerating to 8.62 million bpd in April.
Inventory reductions are expected to peak at around 9 million bpd in May before tapering to 2.7 million bpd by September, according to the IEA. However, these projections rely on the assumption that the Strait of Hormuz will reopen by late May and that traffic will resume in June. Current indicators suggest this timeline may be overly optimistic, implying that inventory drawdowns could be both deeper and longer-lasting than official forecasts indicate. Independent analyst Paul Horsnell estimates a more severe depletion rate: 7.4 million bpd in March, 10.8 million bpd in April, 10.2 million bpd in May, and 11.2 million bpd in June, amounting to a cumulative loss of around 1.2 billion barrels of global inventories.
At this rate, some commercial inventories could reach minimal operating levels—thresholds below which storage systems are ineffective—as early as August, according to Horsnell.
SYSTEMIC BREAKDOWN
While history shows markets seldom reach such critical thresholds, recent months have illustrated that participants typically react swiftly to prevent systemic collapse. Several caveats exist.
The timeline for the reopening of the Strait of Hormuz remains highly uncertain, and even a partial restoration of flow could significantly alleviate global supply pressures. Furthermore, technical limitations in storage may not be uniformly experienced; shortages are likely to arise unevenly rather than as a coordinated global crisis.
Prices also function as a significant balancing force. Historically, oil prices have been inversely related to inventory levels—rising as stocks dwindle. Continued sharp inventory drawdowns would likely lead to higher prices, which would, in turn, dampen consumption and provide some relief. Since the outbreak of the conflict, global benchmark Brent crude futures have surged approximately 50% to around $110 per barrel, but given the scale of the crisis, there remains considerable room for further increases.
China, holding the world’s largest oil stockpiles of around 1.2 billion barrels, could offer additional support by drawing from its reserves and reducing imports. This indicates that market buffers still exist, albeit finite and rapidly depleting. Every day of restricted flow through Hormuz tightens strain on the global energy framework. The breaking point may remain elusive due to a combination of policy decisions, price reactions, and geopolitical dynamics, but it is inching closer. If it does arrive, the consequences are likely to be significant.
(The views expressed are those of Ron Bousso, a columnist for Reuters.)
Published on May 21, 2026.
