Less than a month after analysts warned of a potential crude oil glut as tanker traffic through the Strait of Hormuz began to recover during a U.S.-Iran ceasefire, the market backdrop has changed sharply. The ceasefire has since broken down, missile attacks have resumed, and Yemen’s Houthis are now striking tankers in the Red Sea, leaving two major oil chokepoints blocked or severely disrupted and raising concerns about the risk of a global recession.

Brent crude topped $100 per barrel this week after reports that the Houthis had struck two Saudi tankers in the Bab el-Mandeb Strait. Saudi Arabia is currently using that route as its main outlet for crude while the Strait of Hormuz remains under an Iranian blockade. Shortly afterward, tankers bound for the Red Sea passage began making U-turns and diverting to alternative routes, which require more time and carry higher costs.

At the same time, Ukrainian drone strikes on the Black Sea terminus of the Caspian Pipeline System have forced Kazakhstan to suspend most of its oil exports. The attacks targeted the port of Novorossiysk on Russia’s Black Sea coast, which is also the departure point for the bulk of Kazakhstan’s crude exports to global markets. Bloomberg reported this week that tanker operators were becoming increasingly reluctant to send vessels to Novorossiysk because Ukrainian drones were also striking ships at the port.

The Strait of Hormuz previously handled average oil flows of about 20 million barrels per day. Those flows have now slowed to minimal levels. In recent weeks, the Bab el-Mandeb chokepoint in the Red Sea had been carrying between 4 million and 5 million barrels per day of Saudi oil, according to varying estimates, but that route now also appears to be nearly closed. Combined with the loss of 1.7 million barrels per day in Kazakh flows to Novorossiysk, the global oil supply picture has tightened significantly.

The scale of the disruption matters because these routes are not easily substituted. Hormuz is the main maritime outlet for Persian Gulf producers, while Bab el-Mandeb connects the Red Sea to onward routes toward the Suez Canal and European markets. When both are impaired at the same time, rerouting does not simply shift barrels from one lane to another; it lengthens voyages, ties up vessels for longer periods, and raises freight and insurance costs across the supply chain.

Ukrainian forces are also continuing to target Russian refineries, a campaign that has already contributed to a temporary ban on diesel exports. That comes as global fuel inventories are being strained by the initial effects of the Middle East war.

The refined products market is facing a separate crisis. “Unlike crude oil, refined products face far fewer mitigation options. Several Middle Eastern refineries remain affected by the ongoing conflict while Russia's diesel export restrictions continue to constrain global availability,” Ole Hansen, Saxo Bank’s head of commodity strategy, said in an analysis earlier this month. “Refining capacity globally also remains relatively limited, preventing crude supply increases from quickly translating into additional diesel and gasoline production,” he added.

Against that backdrop, global refining margins have reached an all-time high, providing evidence that fuel markets remain extremely tight despite the millions of barrels of crude that had managed to pass through the Strait of Hormuz in recent weeks before peace negotiations between Tehran and Washington collapsed. High margins are also a sign that the constraint is not only crude availability but the ability to turn crude into the fuels consumers and industry use.

The disruptions are already affecting demand for crude and fuels. In Europe, where diesel stocks are low, consumption fell by 5.7% in May, according to International Energy Agency data cited by Reuters. In China, diesel consumption also declined in May, falling 10%, while gasoline demand dropped by a smaller 5%. Meanwhile, global crude inventories are being drawn down.

“The large strategic stock releases earlier in the conflict have meaningfully depleted the buffer available for any future disruption,” Vortexa analyst Mick Strautmann said earlier in July, as quoted by the Wall Street Journal. The head of the International Energy Agency said, however, that OECD storage still contains substantial volumes that could be released if needed.

“IEA countries still hold a substantial volume of emergency stocks in reserve, including over 1 billion barrels of government-controlled stocks,” Fatih Birol said in a statement on oil markets this week. He added, “There is no room for complacency on oil security amid the escalation in hostilities and a continued drawdown of available commercial inventories.”

Global crude oil demand fell by close to 5% in the second quarter of the year, according to IEA data, following the oil price spike triggered by the war in the Middle East. That decline underscores the tightness of the physical market, even after warnings in June that a glut could be approaching.

The broader economic effects are also prompting renewed revisions to global growth expectations. World Bank chief economist Indermit Gill told Reuters that the institution now expects the global economy to expand by only 1.3% this year, down from 2.9% last year. If the conflicts disrupting energy supply chains continue, the risks to that outlook could increase, and concerns about recession remain significant.

By Irina Slav for Oilprice.com