Oil Market Remains Fragile Amid Geopolitical Risks and Disruptions

The global oil market is navigating a fragile period marked by converging geopolitical risks, maritime disruptions, and depleted inventory buffers. While the US-Iran war risk premium has unwound after the weekend's developments, physical flows remain constrained, and the risk of renewed escalation persists.

Global crude oil supplies are tightening due to impaired flows through the Strait of Hormuz, with visible transits falling sharply as Iran targets tankers attempting to pass through. Even a partial disruption is sufficient to tighten balances and lift volatility in a market still reliant on Gulf exports.

The assumption that Gulf producers can quickly reroute exports away from Hormuz is only partly valid, with Saudi Arabia's East-West pipeline and UAE export routes capable of redirecting around 8-9 million barrels per day. However, this still leaves 7-9 million barrels per day dependent on the strait.