Crude Calculations: Why the Iran war has not yet caused an oil shock
Six months of on-off fighting between the United States and Iran has disrupted more than two billion barrels of oil exports through the Strait of Hormuz, yet benchmark prices remain far below the peaks of past crises.
Source: Council on Foreign Relations · August 28, 2026 at 12:01 PM · AI-assisted report
Opinion
KUALA LUMPUR, 28 AUGUST 2026 —
Six months of on-off fighting between the United States and Iran has disrupted more than two billion barrels of oil exports through the Strait of Hormuz, yet benchmark prices remain far below the peaks of past crises.
Market Impact
The International Energy Agency calls it the largest physical supply disruption in oil-market history, yet the International Monetary Fund still forecasts 3 percent global growth this year and even higher in 2027, assuming no further escalation.
Analysts point to four cushions that absorbed the shock. First, markets were well supplied when hostilities began; the IEA had projected a 2026 surplus of nearly four million barrels a day. Second, advanced economies coordinated the swiftest-ever release of strategic stocks—273 million barrels. Third, flexible infrastructure let Saudi Arabia and the United Arab Emirates divert millions of barrels daily through underused pipelines.
Fourth, the shale revolution turned the United States from an importer into an exporter that can increase output when needed.
“These cushions are the product of lessons learned after the 1973 and 1979 shocks,” said Vijay V. Vaitheeswaran, former global energy and climate innovation editor at The Economist.
Yet the decisive buffer may be the least expected: demand. Conventional wisdom holds that supply can be managed more easily than demand because OPEC—and lately the United States—can adjust barrels quickly. Demand, by contrast, is scattered across billions of consumers and countless countries. Past oil shocks triggered rationing, price spikes and inflation, especially in poorer regions.
This crisis is no different in the hardest-hit places. The World Bank’s June 2026 Global Economic Prospects report found the war compounded fragilities in Bangladesh, widening the fiscal deficit. In Nigeria, fuel prices have jumped nearly 50 percent, intensifying inflation ahead of the 2027 general election.
China has shown how a centralized state can tame demand without wrecking growth. Between January and June it slashed seaborne crude imports by more than five million barrels a day—over 40 percent below pre-war levels—while keeping GDP steady between the first and second quarters.
The National Bureau of Statistics attributed the resilience to strategic stockpiles, a temporary shift to domestic coal and renewables, tighter product export curbs, and policies that accelerated alternative vehicles, energy conservation and public transport.
“Demand can play a far greater role in energy management than policymakers once imagined,” Vaitheeswaran said.
The idea has history. In 1976, Amory Lovins argued in Foreign Affairs that aggressive efficiency could cut U.S. energy use to 95 quadrillion Btu by the year 2000; critics dismissed the figure as implausibly low. Actual consumption that year was 97 quadrillion Btu.
Tools for taming demand are now proliferating. At COP28 in Dubai, almost two hundred countries pledged to double the global rate of energy-efficiency improvement to 4 percent a year by 2030. Electrification—more efficient than combustion—is growing two to three times faster than overall energy demand.
In the first months after the Strait of Hormuz disruption, Chinese exports of electric vehicles surged 50 percent year-on-year to $9.2 billion as countries sought to diversify away from volatile fossil-fuel imports.
The IEA already calls energy efficiency the “first fuel.” If that label holds, future shocks will be easier to weather.
Related: Amory Lovins · Kuala Lumpur