Iran War Disruptions Fail to Spark Expected Oil Price Surge
The Iran war has led to significant disruptions in global energy supplies, but surprisingly, oil and gas prices have not risen as much as expected. In fact, the price increases during the Iran conflict have been relatively muted compared to those during Russia's invasion of Ukraine.
The Strait of Hormuz, a critical waterway for oil exports, was closed due to military strikes between the US, Israel, and Iran in late February 2026, disrupting around 20 million barrels per day (mb/d) of global oil supply. This is equivalent to one-fifth of global oil supply.
Although Saudi and Emirati pipeline networks partially mitigated the disruption, the conflict has resulted in an average supply loss of around 14 mb/d so far, representing 14% of global oil supply. By contrast, the war in Ukraine reduced oil supply by only around 1 mb/d, or 1% of global output.
The price response to the Iran war was also surprisingly restrained, with oil prices standing at around $94 per barrel by early June, a mere 29% above their pre-conflict level. This is significantly lower than the 105% increase in oil prices that would typically be expected given the magnitude of the supply shock.
The market's ability to absorb the disruption was also a key factor in containing price increases. The oil market entered the conflict with an oil supply surplus of around 2.5 mb/d, which was underpinned by record US shale output and China's shift to electric vehicles.