The two main forces that keep the global oil market in balance are supply and demand. But now the war between Iran and the US has shaken both, and one of them could be damaged for a very long time.
On the supply side, the situation remains chaotic. The historic oil glut initially turned into the biggest supply shock to the market. Then, in June, large quantities of oil entered the market. Now, the escalation of the conflict in the Middle East has limited the amount of oil coming from the Persian Gulf countries, returning uncertainty to international markets. But even more difficult to understand is the situation on the demand side. During the five months of war, the world economy has adapted to supply shortages and has learned to function by consuming less oil. Last month, hundreds of millions of barrels that had been blocked in the Strait of Hormuz finally came to market, but they were faced with a lack of interest from buyers. Some of the Middle Eastern oil was sold only after its price fell sharply. The reasons why the world is buying less oil are many and complex. The solution is expected to be just as complicated.
In the three short weeks during which the Strait of Hormuz was partially reopened, something unexpected happened. More than 200 million barrels of oil, blocked in the Persian Gulf, quickly came onto the market, but buyers did not react. Qatar Energy and the state-owned company of the United Arab Emirates were forced to lower the price of oil by $6 to $9 a barrel to find buyers in Southeast Asia.
Currently, more than 18 million barrels of non-Iranian oil are still sitting in tankers outside the Persian Gulf, waiting for buyers. This is more than two and a half times the level before the war. Iran has also faced much greater difficulties in selling its oil. After the memorandum of understanding with the United States, the country managed to export about 70 million barrels through the Strait of Hormuz. Although Washington granted temporary relief from sanctions, China remained practically the only buyer. However, Beijing has also significantly reduced imports from Iran. According to data from the company Kpler, Chinese purchases fell from about 1.5 million barrels per day to just 630 barrels per day last month. Globally, oil demand continues to remain close to maximum capacity, especially since during the Iran war, production was 4 million barrels per day lower than before the war.
One of the main reasons is the lack of capacity to process large quantities of oil. Refineries in many countries are operating near maximum capacity, especially after Iran attacked about 30 refineries in the Middle East during the war.
Most analysts attribute this slowdown to China. Weakening demand from the world’s second-largest economy has put strong pressure on international oil prices. This is also why oil prices have not reached the record levels of 2008 or those of the 2022 crisis, although the current supply shock is much greater. China relies almost entirely on imports to meet its oil needs. However, during the war, Chinese imports fell from over 12 million barrels to a sharp increase, and their number in circulation increased by about a third. At the same time, authorities imposed new limits on gasoline and diesel production per day to less than 8 million barrels.
Some of this decline could be long-term. During the conflict, sales of electric vehicles in China increased sharply and the number of vehicles on the road increased by about a third. At the same time, authorities imposed new restrictions on the production of gasoline, diesel and jet fuel at the country’s refineries.
However, analysts believe that the main reason is not the abandonment of oil, but China’s early preparation for such a scenario. Before the outbreak of war, Beijing created large strategic reserves and, since then, has relied mainly on these stocks, reducing the need for imports. According to the investment bank Goldman Sachs, China is consuming reserves at a rate of about 2 million barrels per day, but still has about 1.9 billion barrels of oil, enough for about 117 days of consumption.
When will demand recover? Sooner or later, China will have to replenish its strategic reserves. When that happens, global demand for oil could rise sharply, and with it, prices. The same is expected to happen in other countries, including the United States. The US Strategic Petroleum Reserve is at its lowest level since 1983. Meanwhile, the International Energy Agency has tapped a record 400 million barrels from emergency reserves to deal with the supply crunch, creating a gap that will have to be filled in the future. However, no one can predict when demand will recover.
Goldman Sachs believes this could happen soon, as China aims to maintain high strategic reserves. The International Energy Agency predicts a decline in demand through 2026. OPEC expects growth, while JPMorgan estimates demand will remain largely unchanged. Even experts themselves admit that forecasting oil demand has become extremely difficult.
The situation in the Middle East continues to make buyers hesitant to return to the market. Tanker traffic in the Strait of Hormuz has fallen again, as tensions in the Region continue to rise. Brent crude oil prices temporarily rose to $96 a barrel, the highest level in more than a month. The situation in the global oil market is further complicated by the fact that Yemen’s Houthi rebels are implementing a naval blockade of Saudi Arabia. The militant group attacked two Saudi oil tankers on Thursday, now posing a second obstacle to global oil supplies, along with Iran’s near-complete closure of the Strait of Hormuz. Yemeni militants, who control areas near the Babel-Mandeb Strait on the other side of the Arabian Peninsula from the Strait of Hormuz, said they announced a naval blockade of Saudi Arabia earlier on Monday, in what some analysts have seen as a tactical move by Iran to exert influence in negotiations.
The Bab el-Mandeb Strait, which connects the Red Sea with the Gulf of Aden, is one of the world’s most strategic oil transport corridors. During the first half of 2025, an average of about 4.2 million barrels of oil and petroleum products passed through it per day, while before the attacks in the Red Sea, this volume reached over 9 million barrels per day.
If the strait is closed, ships would be forced to reroute around the Cape of Good Hope in Africa, adding weeks to transit times and significantly increasing shipping and insurance costs. A prolonged blockade would restrict oil supplies to international markets, putting upward pressure on prices and adding uncertainty to the global economy. Analysts say a recovery in demand requires a lasting resolution between the United States and Iran that gives buyers confidence that tensions will not return. Until then, most countries will continue to rely on their strategic reserves, at least until they start to run low.