At the onset of the 2026 Iran conflict, the closure of the Strait of Hormuz signaled a looming “largest energy crisis in history.” This strategic waterway, a crucial passage for nearly 20% of the world’s traded oil, saw its flow abruptly halted by an Iranian blockade, removing 15 million barrels per day from the global market.
Experts forecasted dire repercussions due to this supply disruption. Predictions included potential fuel rationing in Australia, as reported by Australian news, mass flight cancellations across Europe, as warned by the airline industry, and Goldman Sachs projecting widespread oil shortages. Concerns of a potential global recession were voiced by the International Monetary Fund, with some traders fearing oil prices could reach $200 per barrel.
However, more than four months into the conflict, many of these fears have not materialized.
How the oil market has handled the Iran war
The International Energy Agency coordinates a strategic reserve release of 400 million barrels from over 30 countries, including the United States.
Asian governments implement energy-saving measures, such as remote work mandates and driving restrictions.
While oil prices have risen globally and some regions face shortages of products like cooking oil, widespread rationing and economic recession have largely been avoided. A series of emergency actions, such as the United States tapping into strategic petroleum reserves and increasing production, have helped mitigate the crisis. Nations heavily dependent on Middle Eastern fossil fuel imports have adopted emergency conservation strategies to lower demand.
Here’s how the world has so far managed to avert the worst of the oil shock, and what experts predict might occur if the conflict persists.
Finding alternative sources of oil
In the months following the cutoff of Iran’s primary oil supply through Hormuz, the world has scoured every avenue to secure alternative sources of crude oil. Many countries had emergency stockpiles, and in March, the International Energy Agency organized a historic release of over 400 million barrels from these reserves, temporarily replacing about 20 days’ worth of Hormuz’s supply.
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Additionally, global oil producers increased output to capitalize on higher prices. The United States, Venezuela, and Norway boosted crude production in the first half of the year, supplying barrels to countries previously reliant on Iraq and Saudi Arabia. Notably, South Korea has doubled its oil imports from the U.S. between February and April. Iraq and Saudi Arabia also redirected over 6 million barrels per day through underutilized land pipelines, bypassing the strait.
China, the largest global oil importer, further stabilized the market by halting purchases for its strategic reserves and shutting down its domestic refineries. Instead, it turned to coal and solar power for electricity generation, freeing up an additional 5 million barrels daily for the global market.
Using less oil
Faced with a shortage of Middle Eastern oil, Asian countries that depend on these supplies took significant steps to cut consumption. Many nations shut down factories and industrial facilities that rely on petroleum products, reducing demand by several million barrels a day. Some nations increased imports of electric vehicles or accelerated their transition to solar and wind energy, aiming to lessen their reliance on foreign oil and gas. However, since most imported oil is used for transportation and power generation, altering consumer behavior was also crucial to navigating the crisis.
More than 100 countries have enacted conservation measures, ranging from limiting elevator use to imposing driving restrictions. The Philippines, Pakistan, and Sri Lanka have adopted a four-day work week, while Myanmar has restricted gas vehicle usage to alternate days based on license plate numbers. Bangladesh has set air conditioning limits to 77 degrees Fahrenheit and closed public university buildings to ease the load on a power grid reliant on imported oil and liquefied natural gas from Hormuz.
In Europe, some wealthier nations have implemented more ambitious strategies: The Netherlands encourages trading gas cars for electric ones, and Sweden has halved public transportation fares.
Subaas Shrestha / NurPhoto via Getty Images
These conservation efforts have likely prevented a runaway price spiral, affording importers more time to secure oil from alternative sources. They may have also spared Asian countries from prolonged rationing, akin to the United States’ experience during the 1970s oil crisis, which was the largest prior disruption to global oil supply.
“Governments have implemented numerous measures on both the supply and demand sides, primarily focusing on demand for major oil importers,” said Kevin Morrison, an analyst at the Institute for Energy Economics and Financial Analysis, focusing on oil and gas in Australia. “This trend is likely to persist as uncertainty about future oil supplies continues.”
How long can these tactics last?
Although the most severe early predictions have not materialized, the closure has been challenging. In the initial phase of the crisis, before securing replacement fuel, price surges and supply disruptions in Asia affected millions of lives. Taxi drivers in Myanmar lost their jobs, and funeral homes ceased cremation services due to fuel shortages. A fertilizer shortage during critical rice planting periods in Asia is anticipated to impact harvests later this year, driving up food prices.
Besides crude oil, the conflict has led to shortages of other goods like helium and sulfur, which also transit through the Strait of Hormuz. This has contributed to broader inflation for products ranging from nickel to semiconductors.
Matt Hunt / Anadolu via Getty Images
The recent market shifts have affected even countries like the United States, which have maintained a stable oil supply. Global refiners have produced more jet fuel to ensure airlines remain supplied, resulting in less gasoline for cars. As the U.S. enters its peak summer driving season, gasoline inventories are at their lowest in a decade. Supplies could dwindle further this fall as refineries undergo delayed maintenance, according to Bob McNally, founder of Rapidan Energy Group, who previously advised President George W. Bush’s administration on oil policy.
The situation could deteriorate further. Although global oil prices have declined from their peak, there remains a fundamental mismatch between oil demand and supply. Experts warn of possible severe economic disruption later this year if the Strait of Hormuz remains closed. Some vessel traffic resumed last month following a tentative U.S.-Iran agreement, but the ceasefire has collapsed, and Iran has reasserted the strait’s closure.
“The market decided at the end of Round 1 to price for perfection” in an Iran deal, McNally said. “Instead, we’re getting Round 2. We played some tricks and some cards, but all these things … are either wearing off or already known.”
These “tricks” have reached their limits. Most countries’ emergency reserves are nearly exhausted, and the U.S. strategic petroleum reserve is so depleted that its structural integrity is under strain. Concurrently, China has ended what McNally termed its “crash diet” and resumed oil purchases for its refineries.
This leaves the global market without the buffer it had during the initial phase of the crisis.
“Hormuz 1.0 was about supply and inventory,” McNally noted. “In Hormuz 2.0, prices will have to do more of the work. And they have to go really high, because the problem is demand is inelastic — you’ve got to eat.”
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