Analysis: Oil's wild ride: How Hormuz is driving global oil prices

Oil prices have been swinging sharply in recent weeks as traders weigh the risk of prolonged disruptions to crude flows through the Strait of Hormuz against signs that Middle Eastern supplies are gradually recovering.

Brent crude futures rose 1.27% to $105.64 a barrel by 0036 GMT on Monday, September 28, while US West Texas Intermediate (WTI) crude rose 0.76% to $93.11. Oil later extended its gains, with Brent rising more than 3% after US President Donald Trump rejected an Iranian proposal linked to ending the conflict and reopening the Strait of Hormuz.

Why Hormuz matters

The Strait of Hormuz is a critical energy chokepoint. Before the conflict, about 20% of the world's daily crude oil and liquefied natural gas supply moved through the waterway. But flows remain well below normal.

According to the International Energy Agency (IEA) data, oil flows through Hormuz averaged only 7.6 million barrels per day in August, about 13.1 million barrels per day below pre-war levels.

Some of the lost supply has been offset by alternative routes. Saudi Arabia has used its East-West Pipeline to move crude to Yanbu on the Red Sea. The pipeline can reroute around 4 million barrels per day, according to Reuters.

But those alternatives are vulnerable too. Reuters reported that a drone attack forced Saudi Arabia to shut the pipeline earlier in September before operations were restarted on September 22. The disruption highlighted the limits of alternative routes when infrastructure itself comes under attack.

Why prices keep moving

There are also signs that some Middle Eastern oil flows are recovering.

Crude exports from major Middle Eastern producers are expected to reach 12.8 million barrels per day in September, the highest level since the conflict began, according to preliminary Kpler data. 

Exports through the Strait of Hormuz are expected to reach about 7.4 million barrels per day this month.

Inventories are another important buffer.

The IEA said global observed oil inventories had fallen by 507 million barrels from the start of the conflict through August. IEA member countries had also released more than 300 million barrels of emergency stocks as part of a coordinated response.

What comes next for oil

The near-term direction of oil prices will depend heavily on whether crude flows through and around the Gulf continue to recover and whether diplomatic efforts ease restrictions on Hormuz.

The IEA expects global oil demand to fall by 2.5 million barrels per day in 2026, while global oil supply is forecast at 100.7 million barrels per day, down 5.7 million barrels per day, from a year earlier. The agency said the recovery in Gulf production has been pushed into 2027.