Why Oil Prices Didn't Hit $200 Even With Hormuz Strait Blockade Threats

The Red Sea crisis served as a preview of how the global oil supply chain responds to actual crises. Many vessels used the Cape of Good Hope rerouting to avoid Houthi attacks, with Russian crude oil and product shipments, in particular, increasing more than fourfold year-on-year. While these voyages added 2-3 weeks, the costs were largely offset through insurance and charter adjustments. This crisis provided an opportunity to gain practical experience in logistics responses, such as utilizing detours and operating transshipment systems.

Increased crude oil production in the United States and its neighboring countries is acting as a medium-term buffer for international oil prices. US crude oil production is projected to increase to 13.8 million barrels in 2026 and 14.2 million barrels in 2027. Production increase projects in Brazil, Guyana, Canada, and the United States are proceeding on a medium-term schedule, taking several months to years, while joint releases of strategic petroleum reserves have been utilized as a primary response to short-term crises.

A global decrease in oil demand, particularly a sharp drop in China's crude oil imports, played a crucial role in absorbing oil price shocks. Global oil demand is projected to decrease by 1.6 million barrels in 2026, and China's crude oil imports in the second quarter dropped by 32% compared to the previous quarter. This reduction in market demand acted to decrease the volume needed by the market when a shock occurred, contributing to suppressing oil price surges.

Venezuela, through sanctions relief, can act as a medium-term supply valve to increase supply when needed. Global energy companies like Chevron have been granted licenses in Venezuela, and Chevron plans to invest $7 billion over the next five years to expand production to 600,000 barrels. This provides the potential to respond to international oil supply on a medium-term basis, over 1 to 5 years, rather than having an immediate effect.

A long-term blockade of the Strait of Hormuz would initially cause a surge in freight and insurance costs. In the medium term, production could be halted due to a lack of storage space, and if the blockade persists for several months or more, current buffer mechanisms could reach their limits due to physical damage to infrastructure and depleted inventories.

While not a major immediate impact, the adoption of electric vehicles acts as a small defense against upward pressure on oil prices by reducing oil demand in the long term. As oil prices rise, the economic viability of hybrid and electric vehicles becomes more prominent, accelerating the shift from gasoline-powered vehicles to electric vehicles.

The key to this oil price stabilization was not a single detour replacing the entire Strait of Hormuz, but rather the simultaneous operation of various buffering mechanisms, such as logistics detours, strategic petroleum reserve releases, increased production, and decreased demand. This complex synergy bought the market time to respond to the crisis. Redundant infrastructure, which might normally seem inefficient, played a crucial insurance role in an actual crisis, proving that the global energy supply chain has more detours and buffers than expected.