Brent crude has seen one of its fastest reversals in years — surging on fears of a prolonged Strait of Hormuz shutdown before retreating after the US-Iran agreement. The focus now shifts from panic to recovery, as inventories, shipping & Asian demand determine what comes next, writes Saurav Anand
Why oil prices surged, and then fell so quickly
The recent rally was driven by fear, not an immediate shortage of oil. The Strait of Hormuz carries nearly 20 million barrels of crude oil and petroleum products a day, equivalent to almost 20% of global oil consumption, besides around 20% of global LNG trade. The US-Iran conflict impacted the passage of tankers through this waterway.
The disruption affected over 11 million barrels per day (bpd) of crude production and another 3 million bpd of refining capacity linked to petroleum exports. As the conflict continued, traders feared the world’s biggest energy chokepoint could remain shut for months. At one stage, analysts warned Brent could climb above $150 a barrel, triggering another global inflation shock.
The June 17 US-Iran Memorandum of Understanding (MoU) changed that outlook. Markets immediately priced in a gradual reopening of Hormuz and the return of Gulf supplies. As the fear of prolonged disruption faded, so did the geopolitical premium built into oil prices. Brent corrected sharply even before physical supplies had fully recovered.
Has the oil price bubble really burst?
Largely, yes. But the oil market is still far from normal. The sharp fall in Brent reflects improving confidence but physical oil flows continue to lag.
According to Wood Mackenzie, around 70% of the disrupted production could return within three months, while 90% may recover within six months if Hormuz continues to operate normally.
If peace holds, analysts expect Iranian crude production to average around 3 million bpd in the second half of 2026, rising to 3.1 million bpd by August and potentially 3.3 million bpd by year-end if exports continue freely.
As per Kpler data, there were 108 verified crossings from June 26-28 through Hormuz; pre-war daily traffic was 135. Only 10.8 million barrels of crude oil and petroleum products moved on June 24 (the highest), pre-war average was 20 million barrels a day.
Prices have normalised (Brent crude futures were around $72.68 a barrel on Monday) much faster than actual exports.
Why Hormuz still matters if shipping has resumed
Even after the agreement, future transit arrangements remain uncertain. Shipowners remain cautious, insurers continue charging elevated premiums and governments are closely watching whether safe passage becomes permanent. Iran has indicated that shipping rules could differ from those before the conflict.
Recovery is nevertheless underway. Vessel traffic has risen steadily since the MoU, with daily crossings recovering from the low twenties to post-conflict highs. But analysts say sustained confidence—not one week of higher traffic—will determine whether energy trade fully normalises.
What inventories & refining margins are signalling
The crisis may be easing, but the supply chain is still under pressure.Countries relied heavily on commercial inventories and strategic petroleum reserves during the disruption. Those stocks now need replenishment, creating fresh demand even as production returns.
Refining margins tell a similar story. Although fuel markets have eased, jet fuel margins remain significantly above pre-conflict levels, indicating that refined products remain tighter than crude itself. The result is a market where prices have corrected, but underlying supply conditions remain fragile.
What does this mean for India?
India Imports more than 85% of its crude oil requirement, making every movement in Brent important for inflation, transport costs, fertiliser subsidies and the import bill. The Hormuz crisis also reinforced a broader lesson: energy security is about diversification as much as price.
Indian refiners increased purchases from the US, Oman, Nigeria and Angola during the disruption, reducing dependence on traditional Gulf suppliers. The episode is expected to strengthen India’s focus on strategic petroleum reserves, diversified LNG sourcing and overseas upstream investments.
What next?
The next phase of the market will be driven by four factors: Iran’s production recovery, shipping through Hormuz, inventory rebuilding and demand from China and India. If Gulf production recovers steadily and tanker traffic continues to normalise, Brent is expected to soften over time.
Wood Mackenzie expects Brent to average around $92 per barrel in 2026, reflecting the earlier price spike, before easing to around $78 per barrel in 2027. However, negotiations between Washington and Tehran remain unfinished. Any setback in diplomacy, slower shipping recovery or stronger-than-expected Asian demand could quickly tighten the market again.
The oil price bubble may have burst, but the next chapter will depend less on headlines and more on whether ships keep moving, inventories are rebuilt and Iran successfully returns to global energy markets.