Everything is going wrong for oil markets right now

Everything is going wrong for oil markets right now Jake Conley · Breaking Business News Reporter Updated Thu, July 23, 2026 at 5:35 PM GMT+2 8 min read BZ=F CL=F The second wave of the US-Iran conflict shows no signs of letting up. Attacks by the Houthi militia have threatened to curtail shipping through the Red Sea. Russia's refineries are buckling under the weight of bombardment by the Ukrainian military.

For global oil markets, already in a precarious situation, critical logistical nodes just keep getting thwarted. Things keep going wrong. Oil prices have started rebounding in return, reaching levels not seen since the first weeks of June before the signing of the US-Iran memorandum of understanding as Brent futures ( BZ=F ) crossed $100 per barrel on Thursday.

"If a ceasefire does not materialize," Rystad Energy head of geopolitical analysis Jorge León said, "the risk of a significant rebound in oil prices would be substantial. " As the war between the US and Iran initially began in late February, attention swung toward the Strait of Hormuz, a critical waterway responsible for roughly a fifth of the world's oil trade. Threats of violence and, eventually, direct attacks on vessels by Iranian military wings sent traffic through the strait collapsing, kicking off the largest energy supply crisis on record.

More from Yahoo Scout Why are oil futures underpricing physical market realities? How are attacks affecting global shipping routes? What is causing the current oil supply crisis?

What factors could prevent oil prices from rising further? Six months down the road, as the conflict has reignited, the danger for the global oil market has diversified, no longer concentrated in a single waterway or oil-producing country. Instead, disruptions are accumulating across the infrastructure that carries crude from the Middle East, processes Russian oil into 11% of the world's diesel, and supplies fuel to consumers from Europe to Asia — and at a time when the market is already squeezed after half a year's worth of supply disruptions.

Read more:  How to protect your money as Mideast turmoil fuels market volatility That has created a difficult problem for the market: Even where barrels remain available, fewer routes exist to move them, fewer refineries have room to process them, and fewer emergency buffers remain available to absorb another prolonged outage as new threats emerge. Top of mind for investors remains the Strait of Hormuz, where, after beginning a short-lived recovery, transits of the critical waterway have plunged downward once more. Between July 20 and 21, the waterway recorded only 22 verified crossings, according to Kpler data, compared with more than 100 daily transits recorded before the war.

Iranian leaders have insisted since the conflict reignited two weeks ago that unless the Islamic Republic is allowed control over the Strait of Hormuz, the waterway will remain under threat, prompting shipowners and captains to hold back from making a crossing that could prove dangerous. Story Continues Mourners gather at a ceremony honoring Iran's former supreme leader Ayatollah Ali Khamenei on July 3 in Tehran, Iran. (Photo by John Moore/Getty Images) · John Moore via Getty Images "In a region where we do not sell oil, no one will sell oil.

If our security is not ensured, no infrastructure will be safe, and the security of the strait is in the absence of American forces," Mohammad Bagher Ghalibaf, speaker of the Iranian parliament, wrote on X . "We have repeatedly said that the situation of the strait will not return to pre-war conditions. " Critical alternatives disappearing The newest threat to emerge sits roughly 1,300 miles west across Saudi Arabia, where the Red Sea meets the Gulf of Aden — and where the Houthis, an Iran-backed militant group based in Yemen, attacked two Saudi Arabian vessels in the Red Sea overnight on Wednesday.

Since the Iran war began, Saudi Arabia has managed to increase the amount of oil the Gulf kingdom sends through its East-West pipeline — which runs from the Persian Gulf to the port of Yanbu on the Red Sea — to roughly 4 million barrels per day, per Rystad Energy, a critical release valve for oil trapped behind the Strait of Hormuz. If the Houthis successfully cut off the Bab el-Mandeb Strait, which connects the Red Sea to the Gulf of Aden and has seen roughly 9 million bpd of oil flows over the past month, the market could lose up to half of the oil currently exiting the Persian Gulf. Though some oil could travel north in the Red Sea to the Suez Canal, connecting the Mediterranean Sea, the canal is too shallow to accommodate the largest class of oil tankers when they are fully laden, adding time and cost to shipments.

Satellite imagery and vessel-tracking data have already shown vessels that had been heading south reversing course. "With the Gulf's primary maritime outlet largely closed, the market is increasingly dependent on Saudi Arabia's East-West pipeline and Red Sea terminals to maintain export flows," Rystad's León said. "Any disruption at Bab el-Mandeb would therefore threaten not only Saudi shipments but one of the few remaining routes capable of compensating for the severe reduction in Hormuz traffic.

" Threats from the Houthi militia have pushed vessels planning to exit the Red Sea through the Bab el-Mandeb Strait to reverse course, per Rystad Energy. (Chart: Rystad Energy) · Rystad Energy Problems have also appeared further north, throughout Russia, and on the shores of the Black Sea. Over the past year, the Ukrainian military has turned its long-range capabilities toward hobbling Russia's energy sector, one of the largest sources of funding for Moscow.

After attacks on more than a dozen refineries across Russia, the nation suspended diesel exports, choking off roughly 10% of the world's diesel supply. Just this week, the Caspian Pipeline Consortium, which carries oil from Kazakhstan to an export terminal on Russia's Black Sea coast, announced on Monday that it was suspending loadings after drone attacks on oil tankers in the Consortium's Black Sea terminals, per Reuters. The CPC pipeline accounts for roughly 2% of the global oil trade.

The effects of the array of problems in the oil complex are showing up even more stiffly in the refined products markets, for crude derivatives such as diesel, gasoline, and jet fuel. US refiners are running near max capacity, while those throughout Russia and the Middle East have come under fire as war targets. The 3-2-1 crack spread, a benchmark reading on the margins refineries can make when turning crude oil into derivative products, is hitting all-time highs, meaning buyers have to pay higher prices to refiners.

'Lottery ticket' ideas That these threats are coalescing isn't necessarily reflected in the futures market, where prices have dived after President Trump signed the US-Iran memorandum of understanding, intended to deescalate conflict and reopen the Strait of Hormuz. Futures have ticked up — Brent crossed $100 per barrel, and US WTI crossed $90 on Thursday — but remain roughly $20 to $30 per barrel below wartime highs and far below where physical oil traders often say they should be. Vantor satellite image shows several oil storage tanks on fire at the Tuapse oil refinery, with thick black smoke drifting south over the Black Sea on April 16, 2026.

(Satellite image © 2026 Vantor) · Maxar via Getty Images Given that futures are forward-facing instruments, there's a strong chance they are underpricing the reality facing the physical market, Rabobank global energy strategist Joe DeLaura told Yahoo Finance. "Futures are underpricing right now," said DeLaura, a longtime oil trader. "But that's also because futures have one foot out the door saying, 'Yeah, but what if Trump says, oh, it's a new memorandum of understanding next week, or a new peace deal?

'" There are spots of good news that could help to keep a lid on prices as the US and Iran search for an end to a conflict now approaching its sixth month Oil volumes shipped out of the Persian Gulf climbed as high as 12. 5 million barrels per day in late June as flows began to materially recover after the signing of the US-Iran agreement. While still a far cry from postwar times — when the Strait of Hormuz saw roughly 20 million bpd of oil products making the transit — the recovery to roughly 80% of those levels has pushed the volume of oil on the water to a record 1.

35 billion barrels, per Kpler data, higher even than the late 2025 highs of 1. 33 billion barrels. That surplus of available barrels already loaded onto tankers and available to the market is providing significant cushioning to an energy complex that, without those barrels, would be facing far tighter prospects.

"The reason [prices have not retopped wartime highs] lies in the physical market," Homayoun Falakshahi, head of crude oil analysis at Kpler, said. "Record volumes of crude already on the water are providing refiners with a sizeable inventory cushion, limiting the urgency to chase replacement barrels. " Risks remain tilted to the upside for Goldman Sachs' pricing estimates for Brent crude oil, per strategists led by Daan Struyven.

(Chart: Goldman Sachs) · Goldman Sachs At the same time, China, ordinarily the largest buyer of energy products originating in the Strait of Hormuz, has drastically reduced its imports of fossil fuels, effectively acting as an "invisible hand" for global energy prices through reduced demand, per Marex commodities analyst Ryan Fitzmaurice. The demand destruction of Chinese refineries slowing their inputs was a key lever keeping prices contained during the first phase of the US-Iran war, and the dynamic is reappearing now. Even so, Kpler analysts wrote, "buffers are eroding fast.

" After the first phase of the war drew down global oil inventories throughout both governmental strategic reserves and the commercial sector's own stores, the global oil market is now effectively functioning like a savings account for someone who just lost their job, Rabobank's DeLaura said. The market is effectively treating the situation as manageable because global inventories haven't reached zero, he said. Yet with no solution in sight, that picture grows ever more perilous.

"We're pinning everything on these just absolutely lottery ticket kind of ideas that something will happen," DeLaura said. "The reality is, we're just going to continue to grind out our inventories and savings. " Jake Conley is a breaking news reporter covering US equities for Yahoo Finance.

Follow him on X at @byjakeconley or email him at jake. conley@yahooinc. com .