Dr. Hamad Kasasbeh

The vulnerability of energy markets lies less in a shortage of oil than in their dependence on a limited number of transit routes linking producing regions with major markets. The world may have sufficient production and large inventories, yet still remain exposed to a severe shock if those routes are disrupted. Instability around the Strait of Hormuz and Bab el-Mandeb therefore tests not only maritime security, but also the market’s ability to balance available oil supplies with consumer needs and prevent a supply shock from spilling over into prices, inflation and economic growth.

The sensitivity of the supply side is clearest in Hormuz. Oil and petroleum-liquids flows through the strait fell from about 21.6 million barrels per day in the final quarter of 2025 to roughly 4.9 million barrels per day in the second quarter of 2026. Bab el-Mandeb, where flows reached around 8.1 million barrels per day over the same period, affects the market more through the time and cost of delivery. When both passages come under pressure, the volumes available to some markets decline while transport costs rise at the same time.

Prices, however, do not move because of the physical shortage alone. Uncertainty over the security of key routes adds what is known as a geopolitical risk premium to the price of oil — the extra amount the market is willing to pay because of the fear that disruptions may widen. That premium can rise even before a new loss of supply occurs. At the same time, demand is affected by higher prices and weaker economic activity. The International Energy Agency expects global oil demand to fall by about 2.5 million barrels per day in 2026, compared with a larger decline in supply of around 5.7 million barrels per day.

This is where global inventories act as a temporary bridge between supply and demand. Observed global oil stocks fell by about 507 million barrels between February and the end of August. That figure highlights an important paradox: drawing down inventories immediately adds oil to the market and eases price pressure, but it also reduces the reserve available to deal with future shocks. Strategic stock releases can therefore soften price spikes, but they cannot on their own put prices on a sustainably lower path.

The picture becomes more complicated when moving from crude oil to refined products. Crude oil is not consumed directly; it must first be processed in refineries to produce gasoline, diesel, jet fuel and other products. Crude may therefore be available while some fuels remain scarce because of limited refinery capacity or disrupted exports. This is why the G7 response in October, alongside stock releases, also focused on diesel, refinery utilisation and coordinated maintenance — a shift from asking how much oil is in storage to asking where the real shortage lies within the energy supply chain.

Even so, releasing inventories remains more a way to buy time than a cure for high prices. It does not create new production capacity, expand refinery capacity or remove the security risks surrounding maritime chokepoints. If drawdowns continue without an improvement in supplies and production, lower inventories can themselves become another source of price pressure. Part of the current decline in consumption may also be temporary; if supplies improve and prices fall, some postponed demand may return to the market and slow the subsequent decline in prices.

A more durable stabilisation of crude and refined-product prices requires both sides of the market to be addressed. On the supply side, that means restoring smoother trade flows through Hormuz and Bab el-Mandeb, increasing output from producers with spare capacity, raising refinery utilisation and facilitating the movement of products. If supply remains limited, the market may instead rebalance in a more costly way: consumption falls under the pressure of high prices, weakening economic activity rather than restoring balance through higher supply.

From a broader perspective, current developments have become a global geo-economic shock originating in the Middle East while their costs are distributed worldwide through energy, shipping, insurance, inflation and production chains. The question therefore goes beyond the size of inventories: will the response remain focused on containing the consequences of each disruption after it occurs, or shift toward addressing the source of risk and restoring stability to the routes on which energy trade depends? The longer the disruption lasts, the less effective inventories and temporary alternatives become in containing its effects.

Energy-market stability therefore depends on more than the amount of oil held in storage. It depends on the world’s ability to prevent disruption at key chokepoints from becoming a persistent supply shortage, and to prevent that shortage from forcing higher prices and weaker consumption. This is the real value of inventories: buying time until physical flows stabilise, not replacing them. As security returns, supply improves and the risk premium falls, the chances of lower crude and refined-product prices and rebuilt inventories increase; if disruption persists, markets will remain exposed to volatility that reserves alone cannot contain.