Middle East Conflict Sparks Fears of Worsening Oil Crisis
A potential oil crisis is looming due to the ongoing conflicts in the Middle East. The resilience of the oil market that was seen in March has ended, and prices have increased significantly. The international consultancy firm McKinsey pointed out that inventories are thinning, refining systems are under strain, pipelines are vulnerable to disruption, and the impact is not evenly distributed across countries.
Saudi Arabia's East-West Pipeline was severely damaged by a Houthi attack, and the Strait of Hormuz remains blocked. This has led to the cancellation of crude oil allocations for October 2026 to European customers. Even if the pipeline is restored to full functionality by late November, the geopolitical risk premium will continue to drive up energy prices.
Asian refiners are particularly affected, with up to 4.5 million barrels per day of Asia-bound crude at risk. Around 80% of Middle Eastern oil exports go to Asia, and the closure of the East-West pipeline has forced a massive logistical scramble, increasing freight costs and regional inflation.
China played a significant role in absorbing the shock last May and June by drawing from inventories and reducing oil consumption. However, analysts note that China is now rebuilding its domestic reserves rather than draining them to lower prices for neighboring nations.