Oil flows from the Middle East have almost returned to the levels seen before the United States attacked Iran, an event that triggered one of the largest supply disruptions in history. On a simple reading, prices should have fallen back. They have not. Global crude remains above $100 a barrel, roughly 40% higher than when the conflict began, and the cost is spreading through the world economy in the form of higher inflation and pressure on industries and consumers. Even an announcement that the Group of Seven and its partners would release as much as 100 million barrels of emergency oil and diesel stocks failed to bring prices down. The explanation lies in the difference between how much oil is moving and how well the system that delivers it works. As one investor put it: “We’ve lost supply, drawn down inventories and disrupted the ability to turn crude into products like diesel. Getting the oil moving again doesn’t instantly fix any of that.”
The first reason is risk. The war has not ended; it is in a stalemate. The United States and Iran remain far apart on their demands for ending it, and while they have not returned to the all-out hostilities of the spring, they have at times traded blows. Traders fear that the fighting could reignite at any time, particularly now that the US is sending an additional aircraft carrier and more troops to the Persian Gulf.
The danger is not abstract. Last month, a drone attack on Saudi Arabia’s East-West Pipeline stopped the flow through that vital conduit, showing that infrastructure far from the front line remains vulnerable. Iran is attacking some ships as it tries to control the Strait of Hormuz, through which 20% of the world’s oil passed before the war, and the United States is also trying to control traffic there. A second route is under threat: the Iran-backed Houthis have declared a blockade of Saudi shipping in the Red Sea through the Bab el-Mandeb Strait.
Prices embody a risk premium when markets believe a new disruption is plausible. The longer a ceasefire remains unsettled, the longer that premium stays.
The second reason is transit. Even when ships can sail, the conditions are far from normal. Moving crude out of Hormuz still depends heavily on trans-strait shuttles, ship-to-ship transfers and unconventional routes. Tanker rates have reached records, with the cost of hauling oil from the Persian Gulf to China exceeding $1.2 million a day.
Those costs are added to what consumers ultimately pay. Xuyi Zhao, a senior oil analyst at Guotai Junan Futures, offered the central insight: “a recovery in supply volume does not equal a full normalization of the supply system.” The market, he explained, is pricing not only how much crude is being loaded but “whether these barrels can be delivered safely, reliably, and at low cost.” Safety, reliability and cost are all worse than before the war, which keeps the delivered price high even when loading volumes recover.
The third reason is inventory. Stockpiles around the world stand at about 4.3 billion barrels, according to Energy Aspects, a fall of more than 400 million barrels since March, the first full month of the war. They are at their lowest level in five years.
Low stocks matter because inventories are the shock absorber of the oil market. When they are full, a disruption can be absorbed by drawing them down; when they are thin, any problem translates quickly into higher prices, because buyers compete for scarce cargoes. The G7 release of up to 100 million barrels is meaningful, but compared with the 400-million-barrel loss it replaces only a fraction, and it does not alter the underlying shortfall.
Demand has also come back. After an initial drop caused by high prices, total consumption is now about 104.8 million barrels a day, up 6.5 million barrels a day from the war-time low in May. That recovery means that supply is chasing demand that has regained much of its former strength, which removes one factor that might have eased prices.
The fourth reason is that crude is not the same as fuel. Resuming crude flows does not solve the global shortage of finished products such as diesel. Exports from two of the world’s major refining hubs, the Middle East and Russia, remain curtailed. Russia’s ongoing conflict with Ukraine has blocked exports from many refineries that turn crude into finished fuels.
Refiners elsewhere are filling the gap and running hard, which carries a risk of unplanned outages if overworked equipment fails. They are paying whatever is needed to ensure steady supplies of crude, which bids up its price. Diesel has surged by more than crude since the start of the Iran war, according to ICE data cited in the report, which signals how acute the product shortage is. In practice, two wars are cutting the world’s fuel supply at once, and the refining bottleneck adds to the cost of oil itself.
The fifth reason is financial. Central bankers around the world have spoken of rising fuel prices adding to inflation, and potentially leading ultimately to higher interest rates. With bond yields rising, traders say oil markets are back in play as an inflation hedge, particularly in recent weeks.
This kind of demand does not come from physical consumers. It comes from investors who buy oil contracts because they expect commodity prices to protect them against rising prices elsewhere. It could push up prices just the same, and it creates a feedback loop: higher oil raises inflation expectations, which prompts more hedging, which supports oil.
Taken together, the five factors reinforce each other. Fear of renewed fighting makes shipping more expensive and insurers more cautious; depleted stocks make every disruption more costly; refinery shortages make buyers pay more for crude; and financial hedging adds a layer of demand that has nothing to do with physical use. None of the factors alone would necessarily keep oil above $100, but in combination they explain why the recovery in Middle Eastern volumes has not brought relief.
Several developments would shift the balance. A durable settlement between Washington and Tehran would remove the risk premium and allow normal shipping patterns to return, though stocks would still need rebuilding. Repairs to refining capacity, or an easing of the constraints on Russian and Middle Eastern product exports, would reduce the pressure on diesel. Further stock releases could provide short-term relief but, as analysts warn elsewhere, they risk borrowing supply from the future by leaving smaller buffers for the next shock.
Conversely, a renewed escalation, a successful attack on infrastructure such as the East-West Pipeline or an extension of the Houthi blockade would push prices higher. The distribution of risks therefore seems skewed upward, which is why hundred-dollar oil has proved so hard to leave behind. The lesson of this episode is that the world’s energy system can recover its volumes quickly but takes far longer to recover its resilience, and that consumers will continue to pay for the difference until it does.
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