Oil Flows Recover, but the Middle East Crisis Is Still Driving a Fuel Shock

Oil Flows Recover, but the Middle East Crisis Is Still Driving a Fuel Shock
Oil prices are falling as crude exports through the Strait of Hormuz recover, but the apparent return to normal masks a deeper weakness: refined fuel supplies remain sharply constrained and vulnerable to renewed conflict.

Brent and West Texas Intermediate both declined in early trading as Middle Eastern crude flows approached prewar levels. Tanker data showed a seven-day average of 13.5 million barrels per day through Hormuz, matching the prewar baseline. Saudi Arabia’s restart of tanker loadings from its Red Sea port of Yanbu, following the reopening of its East-West Pipeline, has further eased fears of an immediate crude shortage.

That relief, however, is uneven. Refined-product shipments through Hormuz averaged only 677,000 barrels per day, compared with 3.6 million before the war. Total crude and product flows were therefore still about 80% of the previous baseline, keeping diesel prices at record highs in the United States.

The competing interpretations are clear. Markets are responding to restored crude volumes, while fuel consumers remain exposed to a supply bottleneck. JPMorgan’s Natasha Kaneva said the “crude market has largely normalized even as refined product supplies remain constrained.” That distinction explains why lower benchmark oil prices have not translated into broad relief at the pump.

The recovery is also expensive and politically fragile. More than 70% of Hormuz crude crossings in August involved tanker transfers near the United Arab Emirates or Oman, supported by U.S. military protection. RBC’s Helima Croft called the system “very expensive” and “a huge U.S. military commitment.” Saudi and Emirati pipelines are carrying more oil around the strait, but they remain vulnerable to attack.

With U.S.-Iran diplomacy stalled and Washington considering a diesel-export ban, the market’s calm rests on infrastructure and security arrangements that could quickly unravel. As one energy analyst put it, “The direction of travel is toward escalation.”