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The global oil market successfully absorbed the largest disruption in decades following the outbreak of war in West Asia, though crucial buffers are now running low. A combination of lower demand, increased production outside the Gulf region, and extensive inventory drawdowns prevented a massive price spike after an initial surge, according to an IMF Blog. Crude prices settled into a relatively stable range of USD 90-100 per barrel despite the effective closure of the Strait of Hormuz.

IMF noted that the global system managed to absorb the shock because supply ran about 2 million barrels a day above demand just before the conflict began.

How the Market Absorbed the Shock

During the March to May period, three main factors closed the remaining gap. Demand compression did the heavy lifting, particularly in Asia, as higher prices pushed economies toward coal and renewables. Additionally, oil production outside the Gulf rose by nearly 2 million barrels a day above 2025 levels, led by the United States, Venezuela, Guyana, and Russia. The remaining deficit was covered by drawing down global stocks, including commercial inventories in China and strategic reserves.

Depleted Buffers Raise Future Risks

However, the report noted that the estimated market deficit of about 4.0 million barrels a day during those months depleted much of the market's room to maneuver. "What cushioned the initial blow this time is that energy markets had room to maneuver and absorb it. As tensions flare again in the Strait of Hormuz, that room is now smaller and shrinking further as spare capacity has been deployed, demand has compressed, and inventories have been drawn down. Unless inventories are replenished, the world will start from a weaker position when the next shock comes," the blog noted.

Scale of the Disruption

The closure in Hormuz cut off approximately 20 million barrels per day of crude oil and refined products, representing one-fifth of global consumption. While producers like Saudi Arabia and the United Arab Emirates redirected what they could through alternative pipelines and ports, these workarounds offset only a fraction of the lost volumes. "By the end of May, more than 1.1 billion barrels of crude--equivalent to about 10 days of typical global consumption--had not reached the market. At the same stage of the disruption, the shortfall exceeded those of the 1973 oil shock, the Iran-Iraq war, and the Gulf War," the blog read. "Whenever supply begins to recover, the oil deficit will close only gradually, drawing inventories closer to operational minimums--the level below which the physical system itself begins to bind," the blog stated.

Uncertainty Despite Recent Deals

A recent US-Iran framework agreement to reopen the strait sent prices lower as stranded oil on tankers could rapidly return to the market. Despite this development, significant uncertainty remains regarding when freedom of navigation will be fully restored and how quickly the shipping and insurance industries will respond. IMF estimates indicated that it will take two to three months for a significant share of oil flows to resume after a full reopening, raising concerns that prolonged halts could cause permanent output losses.

IMF's Lessons for Global Policymakers

For global policymakers, the IMF highlighted three critical lessons from the disruption. First, rebuilding inventories remains essential to prepare for future supply shocks. Second, relying on a single chokepoint leaves the global economy heavily exposed, making the diversification of both energy routes and sources vital. Third, government support to consumers must remain targeted to the most vulnerable and temporary to protect budgets while preserving the price signals that encourage energy efficiency. (ANI)