Hormuz Closure Tightens Global Oil Supply Chain

Oil prices have risen significantly since the Strait of Hormuz closed at the end of February. Brent crude traded near $70 a barrel then, but reached $138 in April and has remained above its pre-disruption level.

The macroeconomic response to the disruption has been modest, with only small revisions to world output forecasts for 2026.

However, the data suggests that the structural sensitivity of output to energy prices has fallen due to lower energy intensity and more flexible product and labor markets. But a closer look reveals that the adjustment has been accommodated primarily through inventory management rather than quantity rationing or demand destruction.

The capacity for this type of accommodation is close to exhausted, with implied global stock changes showing a six-month drawdown roughly half as large again as the previous maximum in 2007. Commercial cover across the OECD has fallen to around twenty-one days, and non-OECD buyers have begun to draw down precautionary holdings.

The disruption has primarily affected midstream and downstream capacity, with upstream supply less impacted. The loss of spare routes and refining capacity means that each new attack does more damage than the last.