Oil Market Faces New Phase of Recovery Risks

DUBAI, July 24, 2026 – The global oil market is shifting focus from whether the Strait of Hormuz reopens to the speed, scale, and durability of recovery, according to Rystad Energy’s latest update. Analysts warn that while flows through Hormuz have fallen sharply since March, the market has absorbed disruptions through inventory drawdowns, alternative routes, and spare capacity. The concern now is how long these buffers can last.

Janiv Shah, Vice President of Commodity Markets – Oil at Rystad Energy, said the market is no longer pricing risk purely on geopolitics but on the resilience of physical flows. With spare capacity largely used and inventories lower than at the start of the conflict, prolonged disruptions could push prices higher.

Rystad outlines four scenarios: Oil Market

Full Resolution (5%) – A rapid de-escalation, binding nuclear limits, sanctions relief, and free passage would normalize flows. Asian refiners regain sour crude access, margins stabilize, and governments may refill strategic reserves, supporting demand.
Narrow Deal (40%) – Diplomacy restores trade without resolving nuclear issues. Gulf tanks are cleared slowly, shipping confidence rebuilds, and margins remain elevated as Asia competes for Persian Gulf barrels. US refiners lean on Canadian and South American grades, while Europe absorbs more light sweet crude.
Stalemate (35%) – Saudi exports via Yanbu remain critical, with 4 million bpd exiting the terminal and 2.5 million bpd moving south through Bab el-Mandeb. Elevated freight and insurance costs persist. Asian refiners short of sour crude may cut runs, keeping diesel and jet cracks strong. Strategic stock refilling is delayed, making flare-ups more price-sensitive.
Fighting Restarts (20%) – Escalation closes both Hormuz and Bab el-Mandeb. Saudi barrels diverted north via the Suez Canal and SUMED pipeline face vessel and capacity constraints. Asian refiners lose access to Gulf sour crude, tightening product markets further. Coordinated SPR releases become necessary, but stocks are limited. Elevated costs destroy demand across fuels and petrochemicals, easing markets only through 2027.

geopolitical developments

Shah emphasized that the direction of prices will depend on three factors: whether crude flows into Asia can be maintained, whether refiners adapt to changing crude mixes, and how geopolitical developments unfold. The probability of higher prices rises with escalation, but the magnitude depends on physical market resilience.

The scenarios highlight that while geopolitical risk premiums remain, the market’s ability to adapt through alternative flows, refinery adjustments, and strategic reserves will determine outcomes. Yet with buffers thinning, each disruption carries greater price sensitivity.

As governments and refiners weigh their options, the oil market enters a phase where resilience, not just geopolitics, defines pricing.

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