Despite Iran stepping up attacks on tankers in the Strait of Hormuz, the flow of oil from the region is actually above prewar levels as Persian Gulf states hold off on crossing certain red lines—for now.
According to tracking firm Kpler, shipments via the strait and alternate routes averaged more than 24 million barrels a day last week, topping the average of 23.3 million before the U.S. and Israel launched the war in late February.
To be sure, Hormuz traffic hasn’t returned to normal as the threat of Iranian attacks continues to scare off some tankers. But because of the lucrative payouts that transiting the strait can provide, enough ships are taking on the risk.
At the same time, pipelines that bypass the strait are picking up the slack, and top oil consumers have also reduced demand. In fact, prices for some Middle East oil supplies in Asia are now selling for less than they were a month ago, sources told Bloomberg.
So while the war has dragged on for eight months with no end in sight, oil markets have yet to go off a cliff. Brent crude prices have surged in recent days on reports that the U.S. and Israel are preparing to attack Iran again, but they remain below peak levels seen at the height of the war as the new normal sets in.
“Energy security shocks are persistent, not episodic, and supply-chain and shipping disruptions remain material risks,” analysts at JPMorgan wrote in a note on Wednesday. “Energy markets are converging on a forever conflict in the Middle East, but supply has been resilient and demand destruction in China has been key.”
A survey of investors showed that more than half of respondents expect Middle East disruptions to keep energy prices “structurally elevated” over the next 12 months, the bank added.
But even if supplies remain constrained for another year, JPMorgan said demand destruction could keep oil prices at $90 per barrel and prevent them from soaring to the $120-$140 level that some forecasters fear.
“Repeated supply shocks are driving a lasting reconfiguration of trade routes and energy corridors, and tail risks remain elevated,” analysts added. “Building resilience in supply chains has become a priority.”
Over the longer term, the expansion of pipelines and port infrastructure will help improve the resilience of oil flows, Hamad Hussain, a senior commodities economist at Capital Economics, said in a note last week.
But some short-term measures could also move the needle. Saudi Arabia plans to convert an existing natural gas pipeline to carry 1.2 million barrels per day of oil, boosting the kingdom’s ability to send oil to its west coast within six to eight weeks, he estimated.
And next year, the United Arab Emirates should complete a second pipeline to its port at Fujairah, allowing even more oil to bypass the Strait of Hormuz.
“Energy markets are learning to live with conflict,” Hussain wrote.
But energy markets can’t live with too much conflict. Iran has warned that any fresh U.S.-Israeli attacks would not only target energy infrastructure, but also the region’s data centers and internet cables.
Such attacks would likely be met with similar retaliation on Iran’s infrastructure, prompting further tit-for-tat strikes that would threaten the region’s ability to ship and pump oil over the long term, catalyzing an even worse energy crisis.
“Wiping out an oil terminal opposite of Iran is equivalent to Mutually Assured Destruction (MAD),” TankerTrackers posted on X last week. “How eager is Iran to see its (albeit now-sleepy) Kharg Island oil terminal finally go up in flames? There are lines one simply doesn’t cross even during conflict.”
Indeed, even the U.S. has shown signs of restraint. Despite President Donald Trump’s earlier threats to destroy an Iranian bridge or power plant each time Tehran attacks a ship in the Strait of Hormuz, he hasn’t followed through.
Trump has favored waging economic warfare instead, with the U.S. naval blockade choking off Iran’s oil exports and financial sanctions preventing the regime from repatriating revenue generated abroad.
Renewed fighting could still plunge the Middle East into a cycle of destruction, with another aircraft carrier and Marine expeditionary unit headed to the region. But Trump has backed off from earlier vows to restart all-out war against Iran.
Mike Waltz, Trump’s ambassador to the United Nation, also admitted to the Financial Times that the U.S. could remain locked in a stalemate with Iran a year from now, without a deal on Tehran’s nuclear program or the Strait of Hormuz.
Meanwhile, “the president and the U.S. Navy can maintain this blockade for the foreseeable future,” he added, and the administration is “tightening” its economic pressure on Iran.