News that the United States and Iran may resume talks has helped calm market sentiment in the short term, and oil prices have pulled back accordingly. But that does not mean the situation in the Strait of Hormuz has become less serious. Reuters reported that the U.S. military had already turned back six merchant ships under the new blockade framework, while overall traffic through the strait remains well below pre-war levels. Put simply, the headline mood has softened, but the physical market is still tight.
This matters because Hormuz is one of the world's most important energy chokepoints. According to the U.S. Energy Information Administration, about 20.9 million barrels per day of oil moved through the strait in the first half of 2025. More importantly for Asian markets, around 89% of the crude oil and condensate that passed through Hormuz went to Asia, and China, India, Japan, and South Korea accounted for 74% of those flows. In other words, when Hormuz tightens, Asia feels the impact first and most clearly.
Another important but less widely known point is that alternative routes are far too limited to replace Hormuz in full. EIA estimates that Saudi Arabia's East-West pipeline and the UAE's Abu Dhabi pipeline can together bypass only about 4.7 million barrels per day, while Iran's effective bypass capacity is only around 0.3 million barrels per day. Against normal Hormuz flows of more than 20 million barrels per day, that fallback capacity is simply too small. So even if some cargoes are rerouted, the market still faces a major structural bottleneck.
The issue is no longer just about freight costs or market psychology. EIA said in its April Short-Term Energy Outlook that the Strait of Hormuz has been effectively closed to shipping traffic since February 28. It also estimated that oil-producing countries that rely heavily on the route, including Iraq, Saudi Arabia, Kuwait, the UAE, Qatar, and Bahrain, shut in about 7.5 million barrels per day in March, with shut-ins expected to rise to 9.1 million barrels per day in April. That is a crucial point because it shows that the disruption has already moved into real lost production, not just delayed logistics.
Another point that many readers may overlook is that even if tensions cool, the market cannot return to normal quickly. EIA said it still keeps a risk premium in its oil outlook because traffic recovery through Hormuz would still leave the market dealing with tanker backlogs, route adjustments, and the risk of renewed disruption. It also expects shut-ins to return close to pre-conflict levels only in late 2026, which means this geopolitical premium is not a story of just a few days.
To sharpen the argument further, the International Energy Agency has called this the largest oil supply shock in history and estimates that the conflict has removed about 1.5 million barrels per day of global oil supply. At the same time, it has reversed its 2026 demand outlook from expected growth of 640,000 barrels per day to a decline of 80,000 barrels per day. That combination is especially important: the market is now facing both a supply shock and the early signs of demand destruction caused by higher prices.
From a broader macro perspective, the IMF has also laid out more severe downside scenarios if the conflict lasts longer. In its adverse scenario, the IMF assumes oil prices rise by 80% relative to the January 2026 baseline starting in the second quarter, corresponding to an average petroleum spot price of about $100 per barrel in 2026, while gas prices in Europe and Asia rise by 160% relative to baseline. In a more severe scenario, the IMF says oil prices could rise to around $110 per barrel in 2026 and $125 per barrel in 2027, while gas prices in Europe and Asia could rise by 200% over the same period. These assumptions show that major institutions do not see this as a simple short-term event. They see it as a shock that could spill over into inflation, growth, and industrial costs.