Hormuz blockade brings back war risk premium
Renewed military escalation in the Middle East has reintroduced a meaningful risk premium into crude oil prices. Iran’s announcement of a blockade of the Strait of Hormuz, followed by the US response restricting Iranian vessels and demanding a 20 per cent reimbursement on all protected cargoes, has raised the risk of further disruption to energy flows. The reinstatement of restrictions on Iranian ports could also prompt Tehran to intensify attacks on vessels attempting to transit Hormuz.
Brent has completed a sharp round trip: from around $120/bbl during the February–April war peak, to nearly $70/bbl after the June 17 ceasefire, and back above $85/bbl following Iran’s July 12 re-closure of Hormuz. The market is now balancing renewed geopolitical risk against evidence of weaker demand and improving supply visibility.
Hormuz Tightens physical supplies
The key shipping route supplying 20-25 per cent of energy supplies to world is again at mercy of war, we will see physical barrels to again witness tightening and near-term prices to remain range-bound to higher side, with asymmetric upside risk while Hormuz remains contested. Physical tightness in products, depleted strategic inventories, and under-positioned financial markets should keep volatility elevated into August.
Key drivers
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US strategic reserves remain historically thin, with SPR stocks at a 1983 low of 319.5 million barrels. -
European diesel cracks have surged to record highs near $60/bbl, while gasoline premiums have reached a four-year high of about $41/bbl. -
Russian crude output fell to 8.928 mb/d in June, the lowest level in 2.5 years, as Ukrainian attacks on Russian energy infrastructure disrupted refining and export capacity. -
Russia’s diesel export ban from July has reinforced tightness in refined-product markets, especially distillates.
Europe and Russia facing diesel shortage
The shortage of refined products is most visible in Western crack spreads. European gasoil cracks have surged beyond $60/bbl, while gasoline premiums have risen to about $41/bbl, reflecting the combined impact of Russian export losses, Middle East refinery disruptions, and seasonally firm summer demand.
US distillate inventories remain 8–12 per cent below the five-year average even as refiners operate at 96.6 per cent utilisation. This is a structural product-inventory shortage: US refiners are increasingly supplying Europe, making it harder to rebuild domestic stocks. Capacity losses across Russia, Kuwait’s Al Zour refinery, and Israel’s Haifa facility exceed what higher refinery runs alone can offset. As a result, margins are likely to stay elevated into the autumn maintenance season.
Ukraine hits Russia where it hurts
Sustained Ukrainian drone strikes have disabled an estimated 25–43 per cent of Russian refining capacity at various points since May, with repeated attacks on Omsk, Ryazan, Yaroslavl, and the Tatarstan refining cluster. Moscow banned diesel exports outright on July 8 through July 31, with an extension likely, adding to existing gasoline restrictions and jet-fuel controls that run to November 30.
Russia supplied around 11 per cent of global diesel in 2025, but exports had already fallen 53 per cent Year-on-Year by late June. The current shock is therefore concentrated more in refined products than in crude balances, reinforcing global distillate tightness and supporting elevated crack spreads.
OPEC+ losing pricing grip
The exit of UAE has certainly loosened the cartels grip over the pricing power and the Cartels kingpin Saudi Arabia, and the UAE, Kuwait, Iraq, and Qatar are fighting an open war to control the market share by offering deeper discounts. Seven core OPEC+ producers raised August output targets by 188 kb/d, marking the fifth consecutive monthly increase and continuing the reversal of 2023’s 1.65 mb/d cuts, with 379 kb/d still left to restore. At the same time, Gulf producers continue discounting into Asia by roughly $5–9/bbl below Dubai/Brent, signalling an increasingly aggressive market-share strategy.
The world switch to EV
The energy shock facing Asian economies has accelerated fuel-switching at the margin. IEA data show India’s 2025 EV sales rose 75 per cent, Southeast Asian sales more than doubled, Vietnam reached roughly 40 per cent penetration, and Latin America grew 70–75 per cent. In Q1 2026, electric two- and three-wheeler sales—the most fuel-price-sensitive segment—more than doubled in Southeast Asia and rose 30 per cent in India. The global EV fleet displaced an estimated 1.7 mb/d of oil in 2025. This does not remove near-term upside risk from supply shocks, but it structurally caps the medium-term upside case for gasoline demand.
Outlook
Oil prices may again react volatile to any news of US-Iran making a peace deal comments however the structural tightness in products would keep oil demand stronger for next six months hence we see floor prices for Brent and WTI would remain around $70-75/b. We remains a constructive-to-neutral Brent stance over the next 3–6 months, with a $74–95/bbl base-case range and WTI likely tracking at a $4–6/bbl discount. Diesel and distillate cracks should remain structurally elevated due to the combined impact of Russia’s export ban and Gulf refinery disruptions. On a relative basis, this favors refiners and product-tanker owners over crude producers.
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(Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)
