By Xinhua News Agency reporter Ouyang Wei
Recent volatile developments in the military situation involving the United States, Israel and Iran have triggered wild swings in international oil prices, sending ripple effects across the global economy. A host of variables are shaping oil price movements, including the duration of the conflict, navigation through the Strait of Hormuz, and the extent of damage to energy infrastructure in Gulf states. Analysts widely agree that even after the fighting ends, oil prices will remain high and volatile for a considerable period, with a quick return to previous levels unlikely.
Prices Driven by Headlines
Since early April, international oil prices have retreated from earlier highs amid news of a temporary ceasefire and potential negotiations between the United States and Iran, currently trading in a range of $90 to $100 per barrel. In the short term, progress in talks and the trajectory of the conflict remain the decisive factors for near-term oil price movements.
On April 14, oil prices plunged sharply after the United States hinted at a possible return to negotiations between Washington and Tehran, with some crude oil futures in New York falling nearly 8% that day.
Analysts note that current oil prices are being driven more by market headlines than by supply and demand fundamentals. Nikolai Kozhanov, associate professor at the Gulf Research Center of Qatar University, pointed out that the longer navigation through the Strait of Hormuz is disrupted, the longer oil prices will stay elevated. He argued that supply diversification and shipping route adjustments would do little to calm market panic.
In a recent analysis, Goldman Sachs projected that if the "chokepoint" at the Strait of Hormuz persists for another month, the average price of Brent crude futures could exceed $100 per barrel in 2026. A prolonged disruption and further cuts to Gulf oil supplies would push prices even higher, potentially lifting the third-quarter average to $120 per barrel.
Judging by recent statements from all parties involved, the conflict is unlikely to be resolved quickly and thoroughly in the near term, which will continue to fuel volatility in oil prices.
"Sudden Supply Shock"
"The global oil supply crisis is moving from a warning phase to a tangible shock," Natasha Kaneva, head of commodities at JPMorgan Chase, stated in a recent report. She noted that with the last oil tankers to depart before the Strait of Hormuz disruptions expected to reach their destinations around April 20, "pre-blockade inventories" in global supply chains will be fully exhausted, and the oil supply shock is "now in full swing."
In the international crude market, futures prices reflect market expectations, while spot prices gauge actual supply scarcity. In early April, the front-month Brent crude price – a benchmark for roughly two-thirds of global crude spot trade – surged sharply to $144 per barrel, creating a premium of more than $30 over futures prices at the time. This signaled an acute shortage in physical crude supplies.
Macquarie Group estimated that by the end of March, approximately 13% of global oil production had been forced offline, cutting off some 16 million barrels per day from circulation. Kozhanov observed that unlike supply disruptions caused by sanctions, the current crisis has not only disrupted trade routes but also directly eroded exporters’ shipping capabilities.
A recent report from the International Energy Agency (IEA) showed that in early April, shipments through the Strait of Hormuz remained severely restricted, with daily loadings of crude oil, LNG and petroleum products standing at 3.8 million barrels – far below the daily average of over 20 million barrels in February. The agency warned that this round of oil price gains has outpaced both the 2011 Libyan war and the 2022 escalation of the Ukraine crisis in speed and magnitude, constituting a "sudden supply shock" that will be hard to resolve in the short term.
Daunting Challenges to Restoring Production Capacity
Analysts fear that even if the conflict ends, the current supply-demand imbalance will not ease quickly. Many oil-producing nations have suspended part of their output, shut down wells temporarily and even suffered damage to production facilities amid the fighting, posing steep challenges to restoring production capacity.
Spain’s El Confidencial reported that due to attacks on energy infrastructure and saturated storage facilities, crude oil production could take months to recover, and markets will maintain a sizeable risk premium for some time. Sheikh Nawaf Al-Sabah, CEO of Kuwait Petroleum Corporation, also stated that a full production recovery could take three to four months after the conclusion of hostilities.
The Economist analyzed that even if the Strait of Hormuz reopens, the energy market will need at least three steps to return to normal: first, oil producers must restore output to pre-conflict levels; second, vessels must transport that oil to overseas refineries; and third, refineries must process it into usable fuels. "Each stage takes time."
The US Energy Information Administration (EIA) forecasts that assuming the conflict ends this month and the Strait of Hormuz gradually reopens, crude oil prices will remain elevated through the end of 2027, with some refined products including fuel oil not returning to pre-conflict levels until 2028.
Some observers believe that geopolitical conflicts have pushed up the oil price baseline, exacerbating energy supply risks while underscoring the urgency of energy transition for economies worldwide. In the long run, the global energy landscape may evolve toward greater diversification and low-carbon development. As the traditional oil-dominated structure shifts and renewable energy gains greater prominence, international oil prices may trend downward over time.
