A Glut, a Pause, and a Bargaining Chip: How Cheaper Oil is Blunting Tehran’s Hormuz Threat

Only months ago, the oil market was braced for a familiar kind of panic: a geopolitical shock that chokes supply, spikes prices and forces governments into hurried, expensive choices. The closure of the Strait of Hormuz, a narrow maritime bottleneck at the mouth of the Gulf, looked like the sort of event that can redraw diplomacy as readily as it reshapes trade routes. Yet the story has moved in an unexpected direction. Crude has slipped back towards pre-war prices, shipping flows are settling into a workable rhythm, and producers around the Gulf are bringing barrels back with more speed than many expected.

That easing of immediate pressure matters for motorists and airlines, and it flatters the market’s instinct to declare danger past. But the more consequential effect may be political. Iran’s leverage has long rested on its ability to remind the world how easily Hormuz can be threatened. If the oil system can adjust, even imperfectly, and if major consumers can rebuild their buffers at tolerable prices, then Tehran’s capacity to extract concessions by menacing global energy flows diminishes. The irony is that a moment of relative abundance could strengthen the hand of those negotiating with Iran precisely because it reduces the fear that has so often dominated the room.

In recent days oil has been trading around $70 a barrel, with some analysts arguing that further falls are plausible. Forecasts from banks including Macquarie and Citigroup have suggested crude could sink to roughly $60 in the months ahead. Such numbers would have sounded fanciful at the height of Hormuz disruption. They now reflect a market that is trying to price in two developments at once: a surprising surge of supply and a slower, more bureaucratic return of state buying for reserves.

The first development is visible on the water. Tanker traffic out of Hormuz is not back to where it was before hostilities, but it no longer looks frozen. Ship movements have entered what traders and trackers are calling a new normal, roughly 30 to 60 tankers a day. That is still a reduced flow, yet enough to relieve the tightest pressure in global markets. Vortexa, a ship-tracking firm, estimated that about 140 million barrels of crude left the Gulf in June, an average of around 4.7 million barrels a day, up from about two million barrels a day in May. Early July saw the crude outflow accelerate to about 40 per cent of pre-war levels, again by Vortexa’s measure. This is not a full restoration. It is, however, a meaningful reopening for a market that had been preparing for something closer to paralysis.

The second development is occurring onshore, in the wells and pipelines of Gulf producers. Some of the supply response is organised, and some is opportunistic, but the direction is the same: more barrels are making their way to buyers. Opec and its allies agreed to raise output by 188,000 barrels a day in August, the fifth consecutive monthly increase. Earlier in the crisis, such announcements were read partly as symbols, a statement of intent amid uncertainty over whether ships could move. As traffic through Hormuz stabilises and idled capacity returns, those increments become more tangible.

Individual producers have also moved quickly. The United Arab Emirates, which left Opec in May after years of chafing at quotas, has been among the quickest to revive exports. It is making use of a bypass pipeline from Abu Dhabi to Fujairah, outside the strait, while also taking advantage of the resumption of Gulf shipping. Kuwait’s recovery has been faster than expected; export loadings rose to around 1.6 million barrels a day last week, compared with pre-war levels of roughly 2.4 million barrels a day, according to Rory Johnston of Commodity Context, an oil research firm. Saudi Arabia has continued to send crude via a bypass route to the Red Sea, even as tankers once again exit the Gulf. Collectively, these workarounds and restarts have helped pull the market away from the edge.

For consumers, the immediate temptation is to treat this as a return to normal. Yet there is an important distinction between flows and buffers. The world can have oil moving again while still being dangerously thin on stored supply. And storage is where the diplomatic story sharpens.

Oil inventories, whether held commercially near refineries, stored on ships at sea, or kept in government strategic reserves, function as insurance. When that insurance is depleted, policy choices narrow. If the world has little in reserve, then any renewed disruption translates rapidly into price spikes and rationing fears, which in turn exert pressure on governments to seek quick deals and accept unfavourable terms. If, by contrast, consumers can rebuild inventories, then the fear premium subsides and negotiation becomes less hostage to the next headline from the Gulf.

In the wealthy economies of the OECD, inventories fell sharply. Stocks in the group declined by 163 million barrels from March to May, reaching their lowest level since December 1990. That is a striking statistic, and it should temper any talk of complacency. Low inventories do not produce a crisis by themselves; they create the conditions in which a crisis becomes harder to manage. Refilling those stocks is not a switch to flick. It is a multi-month, often multi-year project, constrained by politics, budgets, and the simple reality that storage capacity and purchasing programmes move more slowly than markets.

This is where the notion of a glut becomes politically useful. Natasha Kaneva, who leads JPMorgan’s global commodities strategy team, warned that a surge in oil supply is about to collide with a market that, for now, does not need it. That collision, in plain terms, means downward pressure on prices and greater availability of barrels for those who wish to replenish. In a world of tight stocks, a drop from $70 to $60 is not just a consumer reprieve. It is a change in the cost of rebuilding national resilience.

But buying for reserves will not surge immediately, precisely because governments tend to move cautiously when they believe prices may fall further, and because replenishment programmes often require formal authorisation. Kaneva has projected that OECD nations are likely to begin refilling strategic reserves in the fourth quarter of this year. The United States, on this view, would start its own replenishment in 2027, initially at around 100,000 barrels a day, then ramping up to about 170,000 barrels a day in the second half of that year. Such timelines help explain why the market can appear oversupplied even as strategic vulnerability persists. The barrels are available, but the buyers who would absorb them are not yet stepping in at scale.

In Washington, the link between stockpiles and statecraft is no longer merely an analyst’s talking point. Vice President JD Vance explicitly connected oil storage to negotiating leverage in an interview last week with the media personality Michael Knowles. Vance said that the United States had signed a memorandum of understanding with Iran to allow the world to refill some stocks and then see where the hand is, a reference to Tehran’s position at the table. The remark was unusually candid, and it captures the logic: if consumer nations can restore a cushion quickly, Iran’s threat to weaponise Hormuz loses some of its force.

That logic is also a bet on time. The memorandum of understanding allows 60 days to settle thorny issues, including Iran’s nuclear programme. Refilling global stocks, however, is likely to take far longer. Even with lower prices and ample supply, the physical act of replenishment cannot match the pace of diplomatic deadlines. This mismatch creates a window in which Tehran may still believe it can press advantages before inventories are rebuilt, while negotiators in Washington and elsewhere will hope that a calmer market can hold long enough to reduce urgency and broaden options.

The United States’ own strategic position illustrates both the opportunity and the constraint. The Strategic Petroleum Reserve, created in 1975 after the Arab oil embargo and stored in salt caverns on the Gulf Coast, is still falling. In the week ended June 26 it hit its lowest level since 1983, according to the Energy Information Administration. That is a politically uncomfortable marker for a country that sees itself as the market’s backstop.

Hamad Hussain, a commodities economist at Capital Economics, has estimated that replenishing the SPR back to pre-war levels would take 15 to 18 months at a rate of 200,000 barrels a day, and even that assumes an optimistic pace of buying. The recent record suggests caution is warranted. After the Ukraine war sparked an oil price shock in 2022, the United States did not begin replenishing its reserve until mid-2023. It then added at roughly 75,000 barrels a day for 30 months, and yet inventories were still significantly below their pre-2022 levels when the conflict with Iran began. Rahul Choudhary of Rystad Energy has argued that Washington did not rebuild the SPR after the previous drawdown cycle, and that with political focus on keeping prices low, it has limited incentive to bid aggressively for barrels now. The dilemma is straightforward: buying to refill can lift prices, and higher prices carry electoral and economic costs. Yet not buying leaves the country exposed.

China’s behaviour adds another layer of uncertainty. Beijing drew down from its vast oil reserves to cushion the Gulf supply shock. Analysts estimate China’s holdings at between one billion and 1.4 billion barrels, a range that itself hints at the opacity of its strategic posture. What is clearer is that China does not appear to be rushing to refill. Vortexa data shows that China imported about six million barrels a day via sea in June, roughly four million barrels a day fewer than its average in 2025. If China remains a subdued buyer, that could reinforce the sense of a supply glut and weigh on prices further. Yet it also suggests Beijing is content to live with lower stocks for now, or believes it can manage risk by other means.

The market’s calm, in other words, rests on several assumptions that do not sit comfortably together. One is that hostilities have largely finished for good. Another is that tanker movements will remain stable and bypass routes will keep functioning. A third is that producers will continue restoring output without provoking a renewed breakdown in discipline or a policy backlash from within Opec and allied states. A fourth is that strategic buyers will not suddenly decide the moment has come to restock aggressively, tightening the market just as it is enjoying relief.

Some in the industry are wary of the prevailing mood. Neil Crosby of Sparta Commodities has noted that prices are reacting to the idea that the conflict is effectively over, but he doubts the outcome is real and lasting, a view shared by many who have spent careers watching Gulf tensions swing from lull to flare-up. The difficulty, as he put it, is that it is hard to bet against the current trend until conflict flares again. Markets are excellent at pricing what is in front of them, and less reliable at pricing what might return.

Still, the diplomatic implication of cheaper, more plentiful crude is not speculative. It is already shaping how governments talk. If the world can keep oil flowing at a tolerable rate, and if falling prices eventually allow reserves to be rebuilt, then Iran’s familiar threat becomes less decisive. It does not disappear, because the strait remains narrow and geography does not change. But the threat shifts from an immediate weapon to a longer-term hazard, one that can be managed rather than feared.

For Tehran, that is the risk embedded in today’s glut. The more the market adapts, the less any single actor can hold it hostage. For Washington and its partners, the challenge is to convert a moment of easing prices into durable resilience without triggering the very political backlash that high fuel costs so often produce. Between those imperatives sits the slow, unglamorous work of refilling tanks, replenishing caverns and rebuilding the stockpiles that make bargaining a matter of choice rather than necessity.