The global oil market has entered an era of persistent geopolitical risk, where the weaponization of energy has become a permanent feature of the landscape, a senior industry analyst said on Thursday.
Uncertainty persists regarding Strait of Hormuz shipping protocols, safety
Israel remains a significant geopolitical wildcard in regional security dynamics
Current demand weakness largely cyclical, rather than structural decline
While a temporary easing of the crisis between the US and Iran may provide short-term relief, the underlying fault lines in the Middle East remain unresolved, leaving the region highly vulnerable to renewed flare-ups, said Vandana Hari, founder and CEO of energy market analysis firm Vanda Insights.
Hari was speaking at the ICIS Asian Base Oils & Lubricants Conference in Singapore, which runs on 25-26 June.
“The market has just exhaled,” she told delegates, describing the immediate sentiment following the recent memorandum of understanding (MoU) between Washington and Tehran.
She warned that market participants must not let this relief blind them to critical risks, noting that “the trust between the two sides [Iran and the US] is still very, very low”.
The nascent US-Iran rapprochement faces a rough start and a tough road ahead, with low trust characterized by pledges remaining unfulfilled on both sides within days of the agreement.
The MoU is intentionally generic and vague, likely because “both sides are desperate to claim victory and sell it accordingly to their domestic audiences,” according to Hari.
Significant hurdles remain, including uncertainty over shipping protocols in the Strait of Hormuz, doubts regarding the civilian leadership’s control over the Islamic Revolutionary Guard Corps (IRGC), and a wide chasm regarding nuclear enrichment and verification red lines.
The logistical reality of the Strait of Hormuz reopening remains confused, limited, and erratic.
Western authorities, such as the Joint Maritime International Information Center (JMIC), have suggested that vessels utilize the southern Omani route, while Iran insists that only transits through its northern channel are permitted.
Both corridors are reported to be narrow, which creates an increased risk of congestion and potential collision.
Furthermore, Hari noted that “every single shipping authority and shipping companies are saying that they are not going to use [the Traffic Separation Scheme lanes] because there are mines in those areas”.
The geopolitical complexity is compounded by the role of Israel, which remains a key wildcard in the regional security architecture.
Hari emphasized that “Israel remains a spoiler” and is noticeably absent from the current diplomatic discourse, despite the potential for its ongoing campaign against Hezbollah to force an escalation.
The market is also grappling with the aftermath of a massive supply disruption that saw over 1.2 billion barrels of oil supply lost since the start of the war.
Nearly 15 million barrels/day of oil supply was lost at the peak of the conflict, with a net loss of around 11 million barrels/day of crude and 4 million barrels/day of refined products after accounting for regional bypasses.
This massive shock has significantly depleted the global inventory buffer, with commercial inventories absorbing much of the supply shock and approaching operational minimums in many locations.
“All kinds of inventory, very crucial buffer against supply shocks, has been mopped up in a lot of locations,” she noted.
The US Strategic Petroleum Reserve (SPR) has fallen to roughly 340 million barrels, its lowest level in more than four decades.
With commercial inventories approaching operational minimums in many regions, the thinned inventory cushion can amplify price spikes and volatility in the event of further disruptions.
The International Energy Agency (IEA) has already deployed nearly half of its 400-million-barrel emergency release, and further coordinated stock releases appear unlikely at this stage.
Despite the current focus on demand weakness, Hari argues that much of this is cyclical rather than structural.
The current glut forecasts for 2027 appear overstated and implausible, she said, with consensus having turned sharply bearish following a projected 1 million barrels/day annual drop in 2026 demand by both the US Energy Information Administration (EIA) and International Energy Agency (IEA).
Hari stated that she disagrees with their projections, noting that “most of the heavy lifting [during the crisis] was done by inventory, so it is demand destruction… but as supply normalizes, prices come down, I expect all of this demand to come back up”.
Demand erosion impacted sectors including aviation, petrochemicals, shipping, heavy industry, and power generation, with the most significant effects observed in Europe, northeast Asia, and parts of emerging Asia and Africa.
Potential scenarios for the Strait of Hormuz remain varied based on the evolution of this fragile truce.
Hari’s base case is a “fragile thaw,” characterized by a stop-start normalization of diplomatic relations and a gradual restoration of shipping confidence over four to six months.
An optimistic scenario, referred to as clear passage, expects that implementation will proceed smoothly, with international channels fully reopened after mine clearance, allowing flows to return to near-normal within 60 days.
A worst-case scenario – a “Strait impasse” – remains a constant threat if the MoU breaks down and negotiations stall, which Hari noted would lead to price spikes exceeding those seen during the height of the war because supply shortages would bite immediately.
“We are going to be in a completely new world as far as the Middle East dynamics are concerned,” Hari added.
Source: ICIS by Nurluqman Suratman
