Five months after the Iran war began, the days of panic oil trading seem to be over

BOMBS are falling, missiles are striking, tankers are being crippled. Hormuz is ablaze. And while the global oil price edges up, there is no market panic.

This time, civilian infrastructure is being hit. On Jul 18, Iranian officials said that American strikes destroyed a seawater pumping station and power transformer at the Bunji desalination plant in southern Iran, disrupting water supply to 20 villages.

In turn, Teheran attacked power and water infrastructure across Gulf states. One, Kuwait, revealed the extent of the damage: Iran had damaged a water desalination complex and an oil facility.

The Trump administration seems convinced that this time things will be different: This renewed military campaign will force the Iranians to negotiate, and more importantly, open the Strait of Hormuz to the free flow of international tanker traffic.

Teheran says the waterway is closed and it won’t hold talks as long as it is being attacked.

What, then, is the outlook for oil supplies for the rest of the year? Or, at least, until the US midterm elections in November 2026 when Washington’s political calculations about the war may be reviewed?

Demand destruction and supply diversion

First: What has not happened so far. All those dire predictions of US$200 per barrel of crude in the immediate aftermath of US and Israeli attacks against Iran on Feb 28 have not come about.

The highest price for Brent, the global benchmark crude, reached was about US$126 a barrel in April. On Wednesday (Jul 22) it was trading at about US$90 despite television footage of bridges and buildings being blown up.

One reason for the lack of a price spike is that there has been some destruction of demand. Electric cars and solar panels have become popular in recent years.

The war has also forced the world to adapt and reduce its heavy dependence on a single, narrow energy corridor. A few Gulf countries have been preparing for just this eventuality.

For instance, Saudi exports were diverted away from the Strait of Hormuz into its pipeline that empties out in the Red Sea port of Yanbu. This pipeline can deliver up to seven million barrels a day.

The United Arab Emirates has also diverted some of its exports away from Hormuz into another pipeline that takes the oil exports to the port of Fujairah in the Gulf of Oman. Two more projects are already under way that will help these nations avoid the Strait of Hormuz.

Additionally, non-Gulf oil producers have stepped up supply.

Another important element in the global oil supply-demand equation is the China factor. Beijing has slashed imports of oil. Reuters reports that for five years, China imported an average of 11.5 million barrels of oil per day (bpd). Since April, it has averaged just eight million bpd.

How did Beijing manage to do that without severe damage to its own economy? As Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies, is quoted as saying: “We don’t fully understand what has happened.”

Whatever the reality, what is abundantly clear is that the global oil market has gone from panic pricing to watching the conflict play out with some measure of equanimity.

Could it be that everyone finally recognises that the value of the Strait of Hormuz has changed fundamentally and that there will never be a return to status quo ante?

The outcome of this war will not be clear for months, perhaps years. But oil market players seem to have decided they can live with uncertainty – at least for a while.