Why Oil Prices Keep Rising: The Strait of Hormuz Crisis and the Real Risk of a Market Panic

This physical blockage quickly cascaded into production shutdowns. Gulf states including Saudi Arabia, Iraq, Kuwait, the UAE, Qatar, and Bahrain found their storage tanks filling without the ability to export, forcing them to collectively shut in 7.5 million barrels per day of crude production in March alone . The US Energy Information Administration (EIA) later estimated those shut-ins rose to 9.1 million barrels per day in April . In total, global oil supply crashed by 10.1 million barrels per day in March—the largest single-month drop ever recorded .

Diplomatic Starts and Stops

The price of crude is not just a function of barrels on water; it is equally sensitive to the perceived odds of a diplomatic exit. Those odds have yo-yoed dramatically.

Talks resumed in early 2026 after widespread protests in Iran, culminating in a series of Omani-mediated meetings in Geneva and elsewhere . At various points, officials from both sides signaled progress. On February 26, just 48 hours before the strikes, Omani Foreign Minister Badr al Busaidi called the talks "substantial progress" and announced plans for technical discussions in Vienna . But that round collapsed when Iran refused to accept US demands to dismantle its nuclear facilities and ship its enriched uranium abroad, and the Trump administration remained publicly dissatisfied .

After the February 28 strikes and the outbreak of war, diplomacy became even more chaotic. A tentative agreement on May 30 to extend a ceasefire by 60 days and restart nuclear talks raised hopes briefly . But those hopes evaporated a day later when President Trump told reporters he was in “no hurry” to strike a deal, despite White House officials saying the broad strokes of a pact were in place . Trump's concern reportedly centered on provisions that could unfreeze Iranian assets; Iran, in turn, accused Washington of stalling with excessive demands .

By June 2, Iran had declared it was suspending all peace talks until Israel halted its attacks in Lebanon, even as President Trump insisted on social media that negotiations were "continuing at a rapid pace" . The contradictory messages underscore a core dynamic fueling oil prices: neither side appears willing or able to close the gap, leaving the market to price in a prolonged disruption.

America’s Shrinking Cushion

With global supply under duress, the world has been leaning heavily on inventories. In the United States, that cushion is visibly thinning.

API data showed US crude oil inventories fell by 2.8 million barrels in the week ending May 22, on top of a 9.1 million-barrel draw the prior week . The EIA’s own numbers confirmed a 3.33 million-barrel decline for the same week . While total US crude stocks are still about 1% above the five-year average, the pace of the drawdown is accelerating just as summer driving season begins.

The inventory pressure is global. The EIA’s May Short-Term Energy Outlook now assumes a later reopening of the Strait of Hormuz and a slower recovery for shut-in production. Under those assumptions, it forecasts global oil inventories will decrease by 2.6 million barrels per day this year—a massive revision from the prior month’s estimate of just 0.3 million—and by an average of 8.5 million barrels per day in the second quarter alone .

The June Tipping Point

This pace of inventory depletion is leading to increasingly urgent warnings from major financial institutions and research firms. JPMorgan has cautioned that commercial oil inventories in developed economies could "approach operational stress levels" by early June . Wood Mackenzie projects that oil and LNG supply shortages will persist through the third quarter of 2026, potentially triggering a shallow global recession in the second half of the year .

Even more starkly, multiple analysts—including those at Saudi Aramco and the International Energy Agency (IEA)—have warned that global gasoline and jet fuel stockpiles could reach “critically low levels” ahead of peak summer demand . One research firm cited by Business Insider put it bluntly: if the Strait of Hormuz remains closed through early June, oil markets will likely descend into “real panic,” with nations panic-buying and hoarding oil as inventories hit rock bottom .

Brent crude had already spiked to $138 per barrel on April 7—a three-year high—before retreating somewhat on ceasefire hopes and a perception that the conflict had reached a standstill . But as those ceasefire hopes repeatedly fizzle, the underlying arithmetic of tightening supply is reasserting itself. The EIA’s base case now sees Brent prices averaging around $106 per barrel through the second quarter, and it warns that large inventory draws will limit any downward pressure on prices even if flows through the strait partially resume .

A Crisis Beyond Oil

The Strait of Hormuz crisis is rippling outward in ways that compound the pressure on crude. The loss of over 80 million tonnes per annum of LNG supply—roughly 20% of the global total—is squeezing energy markets simultaneously, pushing natural gas prices higher in Europe and Asia and forcing some industrial users to curtail operations . Shipping insurance costs have skyrocketed, and cargo rerouting is adding weeks of transit time and millions in additional freight expenses .

IEA chief Fatih Birol has described the situation as "the largest supply disruption in the history of the global oil market" . The World Bank notes that global oil output is expected to fall by 6.9 million barrels per day year-on-year in the second quarter, the largest quarterly decline since the COVID-19 pandemic .

The market, however, is only now beginning to fully price in how long this disruption might last. Wood Mackenzie’s most severe scenario—with the strait largely closed through the end of 2026—pushes Brent crude to an average of $133 per barrel for the year and well beyond $150 in a recurring-conflict scenario . While that is not the base case, it reflects the gravity of a risk that many traders had initially treated as transitory.

For consumers, businesses, and policymakers, the message from the data is unambiguous: without a credible diplomatic breakthrough that reopens the Strait of Hormuz and restores production, the world is heading into a summer of unprecedented energy stress, with price spikes that could test the resilience of the entire global economy.