How the US-Iran Standoff Over the Strait of Hormuz Tightened Global Oil Markets

Unprecedented supply losses from Hormuz disruption

At the peak of the disruption, Goldman estimated that 14.5 mb/d of Middle Eastern crude production had been effectively lost from the global market, with Persian Gulf flows dropping from 80% of normal to just 40% . At one point in April, Strait of Hormuz flows were at only 10% of typical levels . The scale of the supply loss was larger than any single producer could replace.

Rising spot premiums and extreme backwardation

The physical tightness was reflected in the market's structure. Goldman assessed spot Brent's fair value at about $80/barrel as of early August, implying that markets were pricing in only a modest geopolitical risk premium despite the ongoing uncertainty . But the extreme near-term scarcity showed up in the backwardation — prompt barrels traded at steep premiums over forward contracts. At one stage, the Dated Brent spot price climbed to a premium of more than $25 per barrel compared with the front-month Brent futures contract, a reading that flagged extreme near-term physical scarcity .

Demand destruction: the two-sided dynamic

While supply was collapsing, global oil demand also took an unexpectedly large hit. Goldman estimated 4–5 mb/d of global oil demand destruction in April 2026, driven by high prices and economic slowing, particularly in China and Western Europe . The Q2 demand drop alone was estimated at 1.7 mb/d . This demand erosion was large enough to create "two-sided risks" to Goldman's own price forecasts — the supply shock pushed prices up, but the demand destruction simultaneously pulled them down .

$100–$120 oil warnings

Goldman's base case as of early August 2026 was Brent at $80–$90 per barrel until there was clarity on either a new US-Iran nuclear agreement or a significant escalation of the conflict . But the bank's analysts flagged several more alarming scenarios. Analyst Samantha Dart warned that if three simultaneous chokepoint crises — in the Strait of Hormuz, the Red Sea, and the Black Sea — persisted, Brent could hit $120 by Q4 2026 . The bank's bull case saw crude topping $120 in the near term and averaging $100 in 2027 . A ceasefire and preliminary Hormuz reopening deal in June 2026 briefly lowered the Q4 2026 Brent forecast to $80, but the situation remained fragile .

China's Role: A Demand Shock Absorber, Not a Price Amplifier

Pre-war stockpiling

China significantly boosted oil purchases in January–February 2026 before the conflict erupted. Imports rose by 15.8% in the first two months of the year compared to the same period in 2025, as Beijing added to what is believed to be the world's largest strategic petroleum reserve — holding over a billion barrels .

Import collapse during the war

Once the conflict began, China — the world's largest oil importer — slashed crude purchases by more than a third. In June 2026, imports fell to 7.12 mb/d, a 41.3% year-on-year decline and the lowest monthly volume since October 2016 . In May, imports dropped to their lowest in eight years . This dramatic reduction in buying power was itself a major factor in removing demand from the global market.

Modest SPR drawdown

China did draw on its stockpiles in May to keep refineries running — for the first time in 14 months, refiners processed more crude than was available from imports and domestic production combined . But the draw was "not by nearly as much" as the import collapse suggested; the implied SPR release was relatively modest relative to the size of the stockpile .

Potential resumption of Iranian imports

By late June 2026, state-owned refiners Sinopec and PetroChina were considering resuming Iranian crude purchases for the first time since 2019, though competing alternative supplies and falling domestic fuel demand tempered their interest . By August, independent "teapot" refiners in Shandong were poised to ramp up Iranian oil buying as their own stockpiles hit the lowest level of the year .

Net effect on global prices

China's behavior was deflationary for global crude prices in one respect and supportive in another:

Deflationary: By cutting imports by over a third and leaning on its vast SPR rather than competing for scarce spot cargoes, China removed a massive source of demand from the physical market. This reduced the marginal barrel price and partly counteracted the upward pressure from Hormuz supply losses.

Supportive going forward: Governments globally are set to buy millions of barrels through 2028 to rebuild emergency reserves depleted during the war, which will add structural demand support . China's enormous SPR refill needs mean it will eventually pull barrels off the market, sustaining price floors.

Bottom line on China's role

China did not offset the price pressures in the conventional sense of increasing imports to fill a supply gap. Instead, it acted as a demand shock absorber — using its pre-war stockpiles to slash spot-market purchases, which softened the price spike relative to what it would have been had China continued buying at normal volumes. However, that buffer is finite, and the coming SPR replenishment cycle is poised to be a sustained source of upward price pressure for years.

Key Takeaways

• The Strait of Hormuz disruption was the dominant driver of the 2026 oil market tightening, with flows at one point falling to 10% of normal levels and supply losses reaching 14.5 mb/d.
• Goldman Sachs flagged record inventory depletion — draws of 8.7 mb/d in early May, double the March pace — and an eight-year low in days of forward cover.
• Demand destruction partially offset supply losses, with 4–5 mb/d of global demand wiped out by June, creating two-sided risks to price forecasts.
• China acted as a demand shock absorber, cutting imports by a third and drawing on its 1+ billion barrel SPR rather than bidding up spot cargoes, which softened the price spike.
• The coming SPR replenishment cycle is bullish for prices, as governments globally prepare to buy millions of barrels through 2028 to rebuild depleted emergency reserves.