Oil Flows Through Strait of Hormuz Recover Amid Renewed Hostilities

Oil flows through the Strait of Hormuz recovered sharply after the interim US-Iran ceasefire in June, but renewed hostilities this week have revived uncertainty over the global oil market, with risks to crude supply, prices and shipping, the International Energy Agency (IEA) said in its latest monthly oil market report.

The energy watchdog said benchmark crude prices fell through June as tanker traffic out of the Gulf resumed and the market shifted its focus to the prospect of oversupply. However, the latest exchange of missile and drone attacks between the US and Iran has once again raised concerns over the security of the strategic waterway.

"Oil flows through the Strait of Hormuz rose strongly following the interim ceasefire in June. But renewed hostilities this week have highlighted the major uncertainties clouding the outlook for oil markets," the IEA said.

The report comes against the backdrop of renewed US-Iran tensions over the Strait of Hormuz, a key artery for global energy trade. Iran has claimed it closed the waterway and warned ships against transiting without its authorisation, while the US has dismissed those claims, with President Donald Trump and CENTCOM insisting that commercial traffic continues to flow.

Although the interim ceasefire in June helped restore tanker movements and ease oil prices, the latest exchange of missile and drone attacks has revived concerns over the security of the shipping lane and the risk of fresh disruptions to global crude supplies.

According to the agency, global oil supply rebounded by 4.1 million barrels per day (mb/d) to 98.8 mb/d in June as flows through the Strait of Hormuz resumed, supporting a partial recovery in Gulf production. Even so, global output remained 9.4 mb/d below pre-war levels.

The IEA noted that benchmark North Sea Dated crude prices plunged to around $68 a barrel in early July, erasing all wartime gains as crude shipments increased. Prices, however, climbed back to around $77 a barrel after the ceasefire agreement was breached on July 7-8.

According to the report, the temporary easing of US restrictions on Iranian exports and security support for non-Iranian shipments enabled tankers stranded in the Strait of Hormuz to resume voyages. As a result, total Gulf oil exports, including volumes bypassing the Strait, surged by 6.5 mb/d in June to 16.1 mb/d, although they remained well below the pre-war average of 24 mb/d.

Global observed oil inventories also rose for the first time in four months in June, increasing by 21 million barrels as higher volumes of crude at sea more than offset continued drawdowns in onshore storage.

Despite the recovery in crude shipments, refined product markets remain constrained. Gulf exports of refined products and LPG were still less than half their pre-war levels in June, while refinery operations in the region have yet to fully restart. At the same time, attacks on Russian refining infrastructure have further tightened supplies of diesel and gasoline.

On the demand side, the IEA said global oil consumption is recovering from its May low, supported by seasonal travel demand and improving fuel availability. Annual demand is projected to decline by 1 mb/d in 2026 before rebounding by 2 mb/d in 2027.

The agency expects global oil markets to move back into surplus towards the end of the year, but cautioned that the outlook depends on a sustained recovery in tanker traffic through the Strait of Hormuz and a lasting de-escalation in the Gulf.

"The forecast hinges on the assumption that tanker flows through the Strait will gradually recover... Renewed exchanges of fire in the Gulf this week highlight the risks of not reaching a lasting peace agreement, which is a must for the normalisation in oil markets," the IEA said.