Oil Markets Misread Gulf Supply Risks Amid Multiple Vulnerabilities

Oil markets are misinterpreting regional supply risks, behaving as if the region's problems will resolve themselves soon. However, this confidence is increasingly difficult to justify.

By mid-September 2026, futures prices had eased or paused due to limited diplomatic signals, despite three major vulnerabilities developing at the same time: Iran's control over the Strait of Hormuz, the Houthis' growing grip on the Bab al-Mandab, and the shutdown of Saudi Arabia's East-West pipeline after attacks.

The problem isn't just individual routes under pressure; it's that the region is losing reliable alternatives. A pipeline may bypass Hormuz, but it provides little protection if it can also be attacked. Shipping routes remain technically open, but they're of limited value if insurers, crews, and operators consider them too dangerous to use.

The Strait of Hormuz, carrying roughly one-fifth of global petroleum liquids or around 20-21 million barrels per day, has seen traffic fall dramatically since major hostilities between the US and Iran began in 2026. Iran's control over the strait includes passage permits, restricted zones, attacks on non-compliant vessels, and expanded unsafe areas.

Crude flows have fallen to low single-digit millions of barrels per day, far below normal levels. This isn't a temporary disruption; it's damaged confidence in Hormuz as a dependable commercial route. Tit-for-tat attacks between US and Iranian forces have repeatedly disrupted attempts to restore normal traffic.