Oil Market Loses Its Safety Net as Iran Conflict Reignites

The global oil market is much more exposed to the latest re-escalation in the Middle East, as most of the buffers that cushioned the initial shock of the Iran war are wearing thin and unable to prevent the next oil price spike. For weeks, market participants were too complacent that the U.S.-Iran memorandum of understanding would reopen the Strait of Hormuz and the oil flows would recover steadily by the end of the third quarter. The reality dawned on the oil market last week, when the re-escalation all but closed the Strait of Hormuz, again, and the surge of tankers evacuating from the Persian Gulf abruptly stopped. Oil prices hit $90 per barrel early on Monday as supply concerns resurfaced with the Strait essentially closed again and tanker traffic at multi-month lows to the level from before the MoU, which appears to be all but dead now.