Hormuz Crisis Threatens Permanent Oil Demand Destruction

The global oil market is facing a prolonged crisis due to the conflict in the Strait of Hormuz, challenging the initial assumption that oil demand would quickly recover once the waterway reopened. According to the International Energy Agency (IEA), global oil demand was projected to contract by 4.9 million barrels per day (mb/d) in 2Q26 and 2.8 mb/d in 3Q26 before flipping to growth of 580,000 barrels per day (kb/d) in 4Q26.

However, with the conflict lasting for half a year and no clear indication that oil exports from the region will be normalized soon, the likelihood of permanent demand destruction is increasing. The Strait of Hormuz is not entirely closed, but it's also not open, resulting in a global supply shortfall of more than 5 mb/d.

The impact on oil prices has been significant, with no signs of a return to pre-war levels. As a result, the shift to electric vehicles (EVs) is accelerating, with EV sales in new markets jumping 97% in July compared to the same month last year.