“The year 1848 was the turning point at which modern history failed to turn,” as Cambridge historian GM Trevelyan wrote. In future, we may look back on 2026 as the historic energy shock, which failed to shock us.
The frightening statistics are well-known: 20 per cent of global oil production, 20 per cent of liquefied natural gas, and major shares of other crucial commodities such as fertilisers, aluminium, petrochemicals, methanol, helium and sulphur were cut off. The world’s largest liquefied natural gas complex was badly damaged by Iranian missiles and major oil refineries and export terminals were hit by drones.
Pre-war scenarios suggested that, in the event of an Iranian blockade of the Strait of Hormuz, a US-led military campaign could clear it within a few days to weeks. In the event, after three months of fighting and siege, it was only reopened by a ceasefire.
Even this remains shaky. Iran hit a cargo ship sailing through the southern route of the Strait on Thursday, and the US responded by attacking Iranian sites on Friday. Further ships were struck over the weekend, and several vessels that had been approaching the passage turned around. Even though tanker crossings have been picking up, they remain well below pre-war levels – especially the crucial metric of ships sailing into the Gulf to load.
Despite all this, Brent crude closed at $71.99 per barrel on Friday, the lowest level since the beginning of the US-Israeli assault on Iran on 28 February. This is only modestly above the $60 per barrel levels that prevailed in December before the beating of the war drums began.
Throughout the crisis, the highest daily close was only $118 per barrel. This is well below historic records. It defied expectations, including mine, that much higher prices – $130 or more – would be required to cut demand and balance a market suddenly gasping for supply.
Liquefied natural gas prices are up about 50 per cent, from $11 per million British thermal units for east Asian delivery pre-war, to around $15 as of Friday. But this is still far below the extraordinary high of $67 – the equivalent of almost $390 per barrel of oil – during the height of the Russia-Ukraine crisis in August 2022.
Global economic growth has continued, only a little dented by the war. Inflation has not soared. There have been no widespread energy shortages or social unrest.
Why has this unprecedentedly severe interruption of world energy supplies not sparked a shock? The reasons are a complex mix of four factors: flexibility, policy, expectations, and duration.
Supply flexibility
First, the energy system has proved to be more flexible than expected. The bypass pipelines to the Saudi Red Sea coast and to Fujairah in the UAE were crucial outlets for easing pressure on the strait. Towards the end of the blockade, a trickle of tankers was braving the southern exit, carrying mostly UAE crude, offloading it to third-party vessels and returning to reload.
The world entered the crisis with unusually high stocks, the result of Opec’s production increases last year. Beijing, whether out of foresight, caution, or other reasons, accumulated some 1.4 billion barrels of strategic inventories. Indeed, before the war, most predictions were that the market this year would be heavily oversupplied.
Demand dropped too during the conflict, although not dramatically. Cutting more than 10 million barrels per day of consumption in a 100 million-barrel market would have required Covid-era inactivity. But high jet fuel prices, for example, did deter people from flying.
For gas, Asian countries turned back to coal, a dirty but secure and abundant fuel. Renewables programmes accelerated, although not enough to make a difference on a short timescale. Europe eased gas storage requirements, a risky bet but one that avoided the forced scramble for supplies that led to the absurd 2022 prices.
Policy response
Second, governments avoided the policy errors of the 1970s. They mostly managed to refrain from price controls or export bans, which would have led to physical shortages. Direct conservation measures, such as work-from-home orders, were fairly limited.
Instead, they permitted major releases from the strategic reserves set up in the industrialised countries in the wake of the 1970s shocks.
China meanwhile played its own game, but the most influential of all. Cutting back on crude purchases, refining and petrochemical operations, while releasing some domestic stocks, the world’s largest oil importer showed its ability to sway the market.
Managing expectations
Third is the role of expectations. US President Donald Trump and his administration, from the early days of the war, repeatedly promised that it would be short, that it was nearly over, that talks on a peace agreement were going well.
This often appeared unmoored from reality. But it did discourage hoarding. Companies were ready to empty storage tanks, and risk running out of fuel entirely, as they never would have done had they been promised a war of six or twelve months. Bullish investors were repeatedly undercut when positive rumours surfaced just ahead of markets opening on Mondays, causing oil prices to plunge.
Fourth, the crisis was fairly short. Had the blockade dragged on for another month or two, petroleum stocks would indeed have fallen to critical levels. Indeed, Mr Trump admitted that, if there had not been a deal, “We run out of [oil] reserves in about four weeks…The one president I did not want to be was the late, great Herbert Hoover,” blamed for the Great Depression.
It was true, of course, that the US could halt its military campaign whenever it wished. And, by accepting a widely criticised deal, it could also induce Tehran to re-open the Strait.
Remaining risks
But this rosy picture demands three caveats. First, other crucial commodities – fertilisers, sulphur, helium, aluminium – remain severely affected. Not all of them have the same buffers as the oil and gas markets.
Second, the ceasefire is far from watertight. A renewed blockade, even a partial one, would mean global oil inventories keep dropping. Europe needs to accelerate gas imports ahead of winter to refill its depleted storage, even while its heatwave dents wind, nuclear and hydroelectric generation.
Third, the successful navigation of this crisis should not make us complacent. It is not good for energy security that drones and missiles bombard simultaneously two of the world’s core oil and gas producing regions. We need to learn the lessons and build greater resilience, so that the next energy crisis does not truly shock us.
