Oil Stays in the $80 Range Despite Hormuz Disruption... Has 'Peak Hormuz' Arrived?

Oversupply Cushions the Shock

Release of Oil Reserves Also Plays a Role

Extended Disruptions Still Pose Serious Risks

Although disruptions to navigation continue in the Strait of Hormuz, a key global energy transportation chokepoint, international oil prices have not surged to the levels that the market initially feared. Analysts say that the influence of the Strait of Hormuz on the international crude oil market appears to be diminishing compared to the past.

On July 17, local time, Bloomberg suggested in its weekly documentary program that the so-called 'Peak Hormuz' era may have begun. The term 'Peak Hormuz' is modeled after 'Peak Oil,' which refers to the point when oil production reaches its highest level. It implies that the geopolitical importance of the Strait of Hormuz may have peaked and is now gradually declining.

A model of an oil pipeline is placed in front of a map showing Iran and the Strait of Hormuz. Photo by Reuters Yonhap News

The Strait of Hormuz is a narrow waterway located between Iran and Oman. Under normal circumstances, about one-fifth of the world's energy supply passes through this channel.

Until now, the market has expected that a blockade of the Strait of Hormuz would cause a sharp surge in international oil prices. However, Bloomberg reported that the current Middle East war has shown that this formula does not always hold true.

After the United States and Israel launched airstrikes against Iran in February, the price of Brent crude—the global oil price benchmark—rose to the $126 per barrel range during trading at the end of April. This was the highest price in four years, since March 2022. However, recently, prices have been trading in the mid-to-high $80 per barrel range.

Bloomberg noted, "The operational disruptions in the Strait of Hormuz and attacks by Iran against Gulf region countries did not escalate into the oil price surge disaster that was initially feared."

The first background for the limited impact on oil prices is that the global crude oil market was already experiencing an oversupply when the war broke out. Bloomberg also pointed out that collective releases from strategic oil reserves led by the International Energy Agency (IEA) and other nations helped restrain price increases. Furthermore, China, the world’s largest oil importer, chose not to engage in a large-scale purchasing race to secure additional oil, which also had an effect.

There are now more transportation alternatives to bypass the Strait of Hormuz than in the past. Saudi Arabia and the United Arab Emirates (UAE) have transported crude oil to the Red Sea and the Gulf of Oman, respectively, using pipelines that do not pass through the Strait. Bloomberg expects that in the future, countries will take more active steps to secure alternative routes, expand oil reserves, and diversify suppliers, rather than wait solely for normal operations to resume in the Strait of Hormuz.

However, warnings have also been issued that the importance of the Strait of Hormuz has not disappeared. IEA Executive Director Fatih Birol said at a Council on Foreign Relations (CFR) event in the United States the previous day that both China’s oil reserves and the IEA’s strategic petroleum reserve releases have limited the extent of oil price increases. But he warned that these buffering effects cannot continue for long. If navigational disruptions in the Strait of Hormuz persist for several weeks or more, he said, global energy security could face a serious threat.

This content was produced with the assistance of AI translation services.