According to the Economic Information Daily, military tensions between the US and Iran escalated again in early July, rapidly reversing market expectations and causing oil prices to rebound. With the core differences between the conflicting parties yet to be bridged, crude oil prices are likely to remain elevated for the foreseeable future.
In June 2026, the US and Iran reached a provisional memorandum of understanding. Markets responded optimistically, betting on a de-escalation of the conflict, the full reopening of the Strait of Hormuz to shipping, and the resumption of Iranian crude oil exports; Brent crude prices briefly fell to $68 per barrel.
However, the struggle for control over the Strait of Hormuz never truly ceased. Shortly after the second round of negotiations began, military confrontation escalated again on July 8; the talks collapsed completely, rendering the "memorandum of understanding" a dead letter. The two nations remain unable to bridge their core differences. Reports that the US intends to reimpose a maritime blockade on Iran and levy fees on cargo transiting the Strait of Hormuz have intensified market fears regarding crude oil supply shortages. As the conflict evolves, the Bab el-Mandeb Strait—another vital Middle Eastern shipping artery—also faces the risk of closure.
The rapid reversal in expectations regarding the Middle East situation triggered a sharp rebound in oil prices; Brent crude surged more than 25% from $68 in just a few days, briefly topping the $85-per-barrel mark, while light crude futures on the New York Mercantile Exchange (NYMEX) rose in tandem. The geopolitical risk premium has climbed from around $8 per barrel to approximately $14–$15 per barrel. Market analysts believe that the baseline for crude oil prices has undergone a structural shift upward this year, making a significant short-term decline unlikely.
On the supply side, global oil production increased by 4.1 million barrels per day (bpd) in June—reaching 98.8 million bpd—driven by the partial reopening of the Strait of Hormuz. Nevertheless, this figure remains approximately 9.4 million bpd below pre-war levels. As the Strait of Hormuz handles 33% of global seaborne crude oil, a prolonged standoff between the US and Iran would directly slash the Strait's throughput by over 60%, destabilizing a vital artery of global energy transport. Iranian crude exports have already plummeted precipitously; meanwhile, infrastructure such as Saudi Arabia’s East-West Pipeline and the UAE’s Fujairah Pipeline cannot offset the loss of shipping capacity through the Strait, and crude exports from Iraq and Kuwait have nearly stalled. Concurrently, OECD nations have continuously released strategic petroleum reserves to counter Middle East conflicts from the first half of the year; reserve levels have now fallen to their lowest point since 2003, and US commercial and strategic crude inventories have hit 40-year lows. With insufficient market buffers, price volatility could be significantly amplified. Although OPEC+ continues to increase production, internal disagreements threaten to undermine supply stability. Furthermore, since the Middle East's spare capacity is heavily concentrated in the Persian Gulf—a region constrained by geopolitical conflict—this idle capacity cannot be converted into actual exports.
On the demand side, a decline in overall crude oil demand in 2026 appears highly probable. In a report released on July 10, the International Energy Agency (IEA) forecast that global oil demand in 2026 would fall by approximately 1 million barrels per day year-on-year, marking the first annual contraction since the 2020 COVID-19 pandemic. The IEA attributed this projected decline to a US- and Israel-led war against Iran and the resulting geopolitical turmoil in the Middle East. The report added, "Renewed hostilities in the Gulf highlight the risks of failing to reach a lasting peace agreement—a prerequisite for the normalization of the oil market." In its monthly report on July 13, OPEC also lowered its forecast for global oil demand growth in 2026 to 780,000 barrels per day, marking the third consecutive month of downward revisions.
From a medium- to long-term market perspective, high-level volatility is likely to become the norm for some time, making a deep market correction unlikely. Analysts anticipate that if the US-Iran standoff persists without a new round of substantive talks and the strait remains in a state of partial blockade, the benchmark price for Brent crude will likely hover between $78 and $92 per barrel, fluctuating at elevated levels throughout the year. Under a more optimistic scenario—where the US and Iran resume effective negotiations—oil prices could briefly retreat to around $70 per barrel, though low inventory levels would still limit the downside. Conversely, in an extreme worst-case scenario involving an escalation of Middle East conflict, Brent crude could surge to the $120–$125 per barrel range; should both the Bab el-Mandeb Strait and the Strait of Hormuz effectively shut down, international oil prices would spike even higher, potentially triggering a recurrence of the global energy crisis.
SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.
