The US-Israeli military campaign against Iran, known as Epic Fury, has triggered what analysts describe as the worst oil supply shock in history. Yet Brent crude has come nowhere near the $139 intraday level reached after Russia’s invasion of Ukraine, or the $148 peak recorded during the Wall Street credit bubble. According to investor and commentator Matein Khalid, three developments explain why prices have stayed below the worst-case forecasts, and all three have now largely played out.

Why Prices Held Below the Worst Forecasts

First, Saudi and UAE bypass pipelines that avoid the Strait of Hormuz and end at the ports of Yanbu and Fujairah carry 7 million barrels per day of crude. Second, International Energy Agency member states coordinated the release of 400 million barrels from OECD reserves. Third, China cut its oil imports sharply, from 12 million barrels per day on the eve of the campaign to as little as 7.1 million in June.

That last shift carries lasting weight. If Saudi Arabia was Opec’s swing producer before the war, China has become the swing consumer in the world that followed. Khalid calls this a profound change in the global energy balance of power, and one that defines the new era of Hormuz blockade geopolitics.

From Crude to Fuel

With those cushions used up, the strain has moved from crude oil to refined products. Diesel crack spreads have reached $112 a barrel, and gasoline stands at $4.50 per gallon. By Khalid’s account, as much as 75 percent of pre-war refining capacity in Russia and the GCC has been lost to drone and missile attacks launched by Ukraine, Iran, Iraqi militias and the Houthis.

Long-haul oil trade has also changed. Tanker lease rates have risen tenfold, while war-zone insurance premiums have climbed twentyfold across several chokepoints, from Hormuz to the Red Sea, Suez and the Black Sea.

China’s Changing Role

Recent data from Beijing adds to the unease. Chinese oil imports rose to 8.9 million barrels per day in August, and Shanghai crude delivery now trades at a $20 premium to Brent, after a steep discount through the summer. China has directed its refiners to buy crude and sell diesel and jet fuel to Asian buyers short on supply, locking in strong processing profits. A shortage of supertankers capable of long-haul voyages has also limited flows, and Japanese refiners are now buying feedstock from Alaska.

Other buyers are scrambling too. Indian refiners hit by the loss of Qatari LNG cargoes are turning to spot supply from Brazil, the US and Nigeria. After Houthi attacks on its refineries escalated in early September, Saudi Aramco could not deliver refined products to European buyers through Yanbu. The new Dangote refinery in Lagos, running at 98 percent capacity, is now the largest supplier of jet fuel to Europe’s airlines.

Little Prospect of a Ceasefire

Khalid sees bleak chances for a credible US-Iran ceasefire or a return of normal tanker traffic through Hormuz. He notes that the generals who hold power in Iran were absent from last week’s UN meeting with American diplomats. In his view, the Islamic Revolutionary Guard Corps sets preconditions for talks that cross basic US red lines. Tehran refuses to discuss its nuclear programme or to drop its plan to charge a toll on Hormuz tanker traffic, positions unacceptable to Washington and the GCC states. He argues that the Guard Corps has little interest in a settlement, since a deal would weaken its grip on Iran’s politics, energy resources and economic networks.

Pressure on the Arabian Peninsula

The conflict has also spread to Yemen. Khalid says the Houthis have taken the Red Sea coast and defeated the Yemeni government’s forces and allied militias, and that the fall of Aden and Taiz can no longer be ruled out. Riyadh and Sanaa are locked in a full-scale war that he describes as existential for both sides, with Guard Corps commanders playing a guiding role.

The East-West pipeline, which may have seemed redundant in the decades before the war, proved a lifeline for the kingdom until the Houthis broke their 2022 ceasefire with Riyadh, as Tehran sought to pressure Washington by opening a second front.

Building Redundancy

The lesson for Gulf states is clear: energy security, rather than economics alone, will increasingly decide how oil reaches global markets. That means more backup routes and sturdier infrastructure.

The UAE is already moving. As Adnoc lifts output from 3.4 million barrels per day toward a target of 5 million, free of Opec constraints, Abu Dhabi is expected to build new pipelines from its oilfields to the Indian Ocean ports of Fujairah and Sohar. Khalid links the same impulse to the dealmaking of XRG, from an Argentine LNG megaproject to investments in West African and Thai refinery networks.

He describes Abu Dhabi’s “Zero Hormuz” risk policy as a force that will increasingly shape the strategies of its energy operators and sovereign wealth funds as they look worldwide for oil provinces in which to expand.

What Comes Next

The first phase of the shock was absorbed by pipelines, reserves and weaker Chinese demand. The second phase, centered on refined products, shipping costs and damaged infrastructure, may prove harder to manage. For the GCC, the path forward combines diversified export routes, overseas investment in refining and supply chains, and a firm focus on resilience. For consumers and businesses, the message is to expect continued volatility in fuel prices while the Hormuz question remains unresolved.

This article draws on analysis by Matein Khalid, an investor in global financial markets and board adviser to leading family offices in the UAE and Saudi Arabia.

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