How the Strait of Hormuz Crisis Rewired Global Oil Markets

The Strait of Hormuz disruption transformed oil trading into a contest for cargoes that can reach refiners without relying on the Gulf. The immediate impact was an enormous loss of shipping capacity and producer output; the next phase depends heavily on whether China resumes buying more aggressively while Indian refiners remain active in spot markets.

The shock was physical, not just financial

Before the conflict, crude and refined-product flows through Hormuz averaged about 18 million barrels per day. They fell to 4.8 million bpd in July and averaged around 2 million bpd in early August, according to Kpler data cited by Reuters. 5

That drop matters because oil behind the strait is not automatically available to the world market. Storage can fill in exporting countries, forcing production shut-ins. The U.S. Energy Information Administration estimated that Iraq, Saudi Arabia, Kuwait, the United Arab Emirates, Qatar and Bahrain collectively shut in 7.5 million bpd of crude production in March, with shut-ins projected to rise to 9.1 million bpd in April. 1

The International Energy Agency described the disruption as the largest oil-supply disruption in history, reporting cumulative Middle Eastern supply losses above 1.3 billion barrels and Hormuz flows averaging 2.7 million bpd from March through May, versus around 20 million bpd before the conflict. 10

Brent rose, but the bigger change was in the value of alternative barrels

Brent’s settlement at $88.91 a barrel on August 11 reflected a market still assigning a significant risk premium to disrupted shipping and uncertain supply. 3 Analysts surveyed by Reuters at the end of August expected Brent to average $85.08 a barrel in 2026, with reduced supply offset in part by weak Chinese demand.

But benchmark prices alone do not capture the entire disruption. Refiners need crude that is available now, can be transported reliably and works in their particular processing systems. That gives added importance to exporters outside the Gulf.

The Americas have become a more meaningful alternative source. Crude exports from Canada to Argentina averaged a record 11.7 million bpd in 2026 to September 1, up from 10.3 million bpd in 2025, according to Kpler data reported by Reuters. 4 Greater availability does not mean a complete substitute, however: delivery routes, timing and crude quality still differ from the Gulf barrels that were lost.

China initially absorbed part of the shock

China’s reduction in imports was one reason the supply shock did not translate one-for-one into even higher prices. Its seaborne crude arrivals fell to 5.96 million bpd in June, the lowest level in more than a decade, from an average 10.66 million bpd in the three months before the conflict began. 6

By consuming less and drawing on inventories, Chinese refiners reduced their immediate competition for replacement cargoes. Reuters reported that China had the capacity to keep imports lower for an extended period because analysts estimated its stockpile at at least 1.2 billion barrels. 18

This was an important cushion for the global market, not evidence that the supply loss had disappeared. Lower Chinese buying effectively rationed scarce oil across the rest of the market.

A Chinese buying recovery would tighten substitutes

The risk for oil prices is that China’s restraint may prove temporary. Reuters reported that China added an estimated 210,000 bpd to inventories in July after drawing from stockpiles in May and June. Separately, Chinese seaborne imports of Russian crude were estimated at 1.25 million bpd in August, with July and August the strongest months since April, indicating efforts to replace Middle Eastern barrels. 17

A sustained pickup in Chinese purchases—whether driven by refinery demand, petrochemical feedstock needs or inventory rebuilding—would focus demand on the same non-Gulf supply pool sought by other Asian buyers. Sinopec has said it would increase sourcing from Brazil, Africa and other regions in response to the supply disruption.

That does not guarantee a new spike in Brent. It does mean that prices for specific available grades, and the premiums attached to prompt delivery, can remain tight even when the benchmark temporarily stabilizes.

India adds to spot-market competition

Indian refiners have also turned more to spot purchasing to replace interrupted Middle Eastern supplies. Indian Oil Corp said its spot-market share of buying rose from 50% to almost 84% as it adjusted sourcing during the crisis.

When both China and India seek replacement barrels at the same time, cargoes from Africa, the Americas and Russia become more strategically valuable. The market’s pressure point is therefore not merely total global production; it is the amount of suitable crude that can be delivered quickly to Asian refiners.

What could push oil higher by year-end?

Three developments would present the clearest upside risks:

• A longer-than-expected shipping disruption. Continued restrictions through Hormuz would prolong production shut-ins and keep delivery risk elevated. 15
• A faster Chinese return to buying. China’s earlier import cuts relieved pressure. A shift toward replenishment would remove that buffer and intensify competition for non-Gulf cargoes. 617
• Limited spare flexibility in alternative supply. The Americas’ export growth is material, but it cannot instantly replicate the volume, route and crude mix previously supplied from the Gulf. 4

Demand destruction is the counterweight

High prices also reduce consumption. The IEA cut its 2026 oil-demand outlook, projecting a decline of 1.6 million bpd and attributing the weaker outlook to high fuel prices and the Hormuz disruption. 11

That response is the market’s main stabilizer. If demand stays weak and China continues to limit imports, alternative supplies may be sufficient to prevent a renewed sharp rise. If shipping remains constrained while China rebuilds inventories and Asian refiners compete for prompt cargoes, the cushion becomes much thinner.

The central lesson is that the Hormuz crisis has made physical availability more important than headline supply totals. The direction of Chinese buying—and the duration of the shipping disruption—will be decisive for the next move in oil prices.