35 Despite the intense 12-day military confrontation between Israel and Iran, global oil markets remained remarkably calm. Oil prices saw only minor fluctuations, rising briefly from $68 to $77 per barrel, before swiftly returning to pre-conflict levels. Even in a worst-case scenario in which Iran blocked the critical Strait of Hormuz, through which 19-21 million barrels of oil transit each day, major banks and analysts such as J.P. Morgan or Goldman Sachs forecast that oil prices would peak at $120 per barrel and then rapidly decline below $70 by the end of 2025. These assessments stand in stark contrast to predictions made three years earlier, when a similar scenario would have driven prices as high as $250 per barrel. This chapter points to three main reasons why the markets reacted so differently this time: (1) global oversupply of oil; (2) the existence of sufficient alternative suppliers and land infrastructure to bypass the Strait of Hormuz; and (3) the role of China as the main beneficiary of Iranian oil. 1. GLOBAL OVERSUPPLY Global oil markets currently benefit from a significant oversupply that keeps oil prices loweven under extreme circumstances. Notwithstanding the geopolitical mystique surrounding the market, oil prices are determined by the simple economic principle of supply and demand. When markets are saturated, even severe geopolitical tensions in critical regions liketheMiddleEastexertonly limited influence on prices. A historical parallel would be the 1980-1988 Iran-Iraq War, during which the two countries attacked one another’s oil infrastructure and tankers and Iran even attempted blockades of the Strait of Hormuz. Despite this turmoil, oil prices continued to decline during those years, supported by increased production from non-OPEC countries (notably the USSR) and decreasing demand from Western nations that were already shifting away from oil towards nuclear and coal as their main fuels for electricity generation. Today, similar dynamics are at play. Robust oil production in Russia and the United States, combined with stagnating Chinese demand due to advancements in electric vehicles and renewable energy sources, has kept global supply ample. The recent announcement by OPEC+ members that they will continue to increase oil production despite falling prices has further strengthened the overall sentiment that the market is awash with excess oil. According to the International Energy Agency’s (IEA) recent report from June 2025, oil production capacity is expected to significantly exceeddemand growth through 2030, leading to predictions that oil prices will remain relatively low for the next five years. This doesn’t mean the market will necessarily stay oversupplied, as it tends to move through unpredictable bust and boom cycles – but in terms of timing, Israel struck Iran at just the right moment to create minimal impact on the oil markets. 2. ALTERNATIVE INFRASTRUCTURE TO BYPASS HORMUZ A second major factor that calmed the markets was the existence of alternative oil suppliers and logistical options in case of disruption in the Straits of Hormuz. In anticipation of a possible Iranian blockade, the United States issued assurances that it could rapidly deploy its Strategic Petroleum Reserves, containing 400 million barrels of oil, to the global market in order to lower prices. How Global Oil Markets Mitigated the Threat to the Straits of Hormuz Dr. Elai Rettig Assistant Professor in the Department of Political Studies and Senior Research Fellow at the BESA Center. His research focuses on energy geopolitics and national security.
RkJQdWJsaXNoZXIy NDU2MA==