Middle East Disruptions Expose Energy Markets to Severe Shocks

Energy markets are vulnerable to disruptions in key transit routes, not just due to a shortage of oil, but also because they rely on limited transportation channels. Dr. Hamad Kasasbeh notes that even with sufficient production and large inventories, the world is exposed to severe shocks if these routes are disrupted.

The Strait of Hormuz and Bab el-Mandeb have seen significant disruptions in recent times, with oil flows through the strait falling from 21.6 million barrels per day in December 2025 to around 4.9 million barrels per day in June 2026. The impact is not just physical but also affects market sentiment, with a geopolitical risk premium added to the price of oil due to uncertainty over security risks.

Global inventories play a crucial role in containing disruptions, acting as a temporary bridge between supply and demand. However, drawing down inventories reduces the reserve available to deal with future shocks, making strategic stock releases a short-term solution rather than a long-term fix.