Since August, shipping tracking and media reports have shown that traffic through the Strait of Hormuz, measured on a daily basis, has dropped to extremely low levels, with some statistics even indicating almost no oil tankers passing through. However, Brent crude has not consistently stayed above $100. After briefly surging in late July, it has recently spent more time around $90.
This is precisely what the current energy market needs to explain. Around 2024, approximately 20 million barrels per day (bpd) of oil products passed through the Strait of Hormuz, accounting for about 27% of global seaborne oil trade, with LNG (liquefied natural gas) also representing about one-fifth of global trade. According to traditional pricing frameworks, with this area under prolonged threat, oil prices should quickly incorporate a disruption premium.
The Strait of Hormuz Moves Oil and Gas Trade
The market's current answer is more restrained. The risk hasn't disappeared, but investors temporarily believe that stockpile releases, transshipment outside the Gulf, alternative exports, and shipping arrangements can absorb the shock. Oil prices are trading not on "strait security," but on "strait passage becoming more expensive."
The US-Iran stalemate provides the political background for this reassessment. According to reports, disputes between the two sides regarding the implementation conditions of the temporary memorandum in June persist, with the US maintaining blockade and sanctions pressure, while Iran demands that the conditions be met before normalizing passage. Translated into the market, this is essentially a question of cost allocation: who bears the higher insurance, financing, voyage, and sanctions risks.
Oil Prices Are Not Yet Trading the Worst-Case Scenario
The current price indicates that the market is not, for now, pricing the Strait of Hormuz as a scenario of long-term, complete supply disruption.
If investors believed that seaborne oil products at the 20 million bpd level would disappear for a long time, Brent would struggle to linger just around $90. The price's failure to consistently stay above $100 suggests traders are more inclined to interpret the situation as passage obstruction, rising costs, and delivery delays, rather than a supply chain breakdown.
Brent Rallies Then Retreats
There are still statistical noises. The sharp drop in some daily traffic figures might stem from vessels turning off AIS positioning, shipowners waiting temporarily, differences in data source filtering, or commercial shipowners' reluctance to enter high-risk waters. The former is closer to data distortion, while the latter would constitute a sustained supply shock.
Therefore, oil prices not stabilizing above $100 is not because the Strait of Hormuz is unimportant, but because the market is still waiting for harder verification. Whether Iran can sustain and escalate attacks, whether the US will escalate the blockade to more direct action, and whether Asian buyers can still bypass transport and sanctions constraints will all change this pricing.
Buffer Mechanisms Divide the Shock into Multiple Stages
A core reason why oil prices haven't spiraled out of control immediately is that the shock hasn't hit end-supply all at once but has been absorbed into inventory, shipping, trade, and financial segments.
The most direct buffer comes from inventory and expectations of alternative supply. Strategic petroleum reserves, coordinated international releases, OPEC+ spare capacity, and the export capabilities of Saudi Arabia and the UAE outside the Strait can all dampen the impact of a single shipping lane disruption on spot prices. They cannot be used indefinitely but are sufficient for the market to temporarily avoid pricing a disaster scenario.
Diversion Capacity Can Only Cover Part
The second layer of buffer comes from ship-to-ship transfers. Some cargoes can be transferred near Fujairah or the Gulf of Oman and then re-routed. This increases insurance, waiting time, and operational costs but can maintain some elasticity in cargo flows.
The third layer of buffer comes from choices made by buyers and shipowners. Some Asian buyers and shipowners might switch to loading outside the Gulf, transshipment, or delayed berthing arrangements, with LNG transportation possibly taking similar evasive actions. The result is that a decline in Hormuz traffic does not necessarily equate to a synchronous decline in globally available oil and gas volumes.
This is the core of current pricing. Physical risk remains, but it's being distributed across financial inventories, shipping logistics, and trade arrangements. Oil prices aren't exploding because the system is still functioning. Oil prices aren't falling because the system is functioning more expensively.
Shock Absorbed in Stages
Long-term Costs Enter the Supply Chain
The more effective the short-term buffers are, the clearer the investment rationale for long-term restructuring becomes.
Saudi Arabia and the UAE's push for reserves outside the Strait, Fujairah transshipment, and alternative export capabilities, along with increased discussions about pipeline and port investments within the region to bypass Hormuz, all point in the same direction: energy supply chains are reducing their dependence on single-point passages.
Such restructuring won't immediately change the global supply-demand balance. New pipelines require financing, construction, and security conditions; strategic reserve expansion also takes time. But it will alter the long-term cost structure. Ports, reserves, insurance, tanker scheduling, and loading capabilities outside the Gulf are transitioning from backup plans to necessary costs.
For Asian buyers, another cost comes from secondary sanctions, where the US extends pressure to third-party refineries, banks, and shipping insurance. If sanctions more explicitly target trading chains purchasing Iranian crude, the advantage of low-priced oil relied upon by China's independent refineries in the past could be eroded by risks related to US dollar clearing, financing, and insurance.
This is also why energy markets cannot look solely at the Brent front-month contract. Diesel, freight rates, insurance premiums, refinery margins, and regional price differentials may reflect the real transmission of Hormuz risks earlier than crude prices themselves.
Days of Inventory and Sanctions Enforcement Will Reshape Pricing
The current low volatility is built on one premise: buffer mechanisms can continue to operate, and military escalation hasn't crossed a market red line.
Inventories can buy time but cannot replace long-term supply. Transshipment can bypass some risky waters but brings higher insurance and longer voyages. Alternative export capacity provides a pricing buffer but can hardly fully accommodate main flows in the short term. Once these buffers weaken at the margin, oil prices will reassess the probability of disruption.
Sanctions enforcement intensity will also change the price path. If the US mainly releases deterrent signals, Asian buyers might still digest the shock through trade structures and financial arrangements. If sanctions truly pressure refineries, banks, and shipping insurance, Iran's export discounts might lose effectiveness, and costs would transmit from the shipping end to the refining end.
The signal the Strait of Hormuz is currently sending to the market is not that the risk is resolved, but that the risk is being absorbed in stages. Whether Brent can regain and sustain a position above $100 depends on how much longer inventories, transshipment, and buyer workarounds can bear. The next price validation might first appear in freight rates, insurance, and diesel crack spreads.
