After 6 months of war, why aren't oil prices even higher?

After six months of war, oil prices have not reached the dramatic spikes once feared by analysts. Despite Iran's attempt to block the critical Strait of Hormuz following a U.S.-Israeli strike, global oil prices peaked at around $120 per barrel in April and have mostly remained below $100 since June. This has puzzled market observers who had anticipated a much sharper rise given the strategic importance of the strait, which handles approximately 20% of the world’s oil trade. The U.S. has made significant strides in regaining control of the Strait of Hormuz, according to officials. Initially, Iran claimed the waterway was closed after the war began in late February, threatening to attack vessels attempting to pass through. However, over the past two months, U.S. forces have gradually weakened Iran's grip on the region. This shift has led some to describe the situation as a turning point in the conflict, potentially offering relief to global economies and paving the way for renewed diplomatic engagement with Tehran. President Trump stated during a recent call with Axios that the strait is now open, and Iran's response has been minimal, suggesting a possible change in the power dynamic. The initial closure of the strait, however, was not solely a public show of strength. According to Israeli officials, the decision was made by General Alireza Tangsiri, commander of the Islamic Revolutionary Guard Corps Navy, who ordered the deployment of naval mines in the main shipping lane. Tangsiri was killed in an Israeli airstrike in Bandar Abbas shortly thereafter. In the immediate aftermath, Iranian attacks on commercial vessels and the presence of mines disrupted maritime traffic, causing oil prices to surge to as high as $126 per barrel. The U.S. responded by agreeing to a ceasefire on April 8, partly due to domestic concerns over rising fuel costs. The subsequent reopening of the strait became a key element of a U.S.-Iran agreement, though the deal eventually collapsed. Since then, the U.S. has taken unilateral steps to secure the strait. Joint operations with the UAE have guided ships through the southern channel, providing aerial protection against Iranian attacks. A sustained bombing campaign has diminished Iran's capability to threaten shipping, while mine-sweeping efforts have removed numerous objects from the main shipping lane. Although only 11 of the 200 items identified were confirmed as mines, the removal of these obstacles has allowed for increased traffic. Currently, between 20 and 30 tankers traverse the southern channel nightly, transporting an average of 9 to 10 million barrels of oil. This represents about half the pre-war volume. U.S. officials claim that international shipping lanes are now clear of Iranian sea mines, marking a significant achievement in securing the vital waterway. Analysts suggest that the lack of a sharp increase in oil prices may be attributed to factors such as China's substantial reduction in crude oil imports. China reportedly decreased its imports by over five million barrels per day, roughly 45% of its previous level. This decline includes both reductions in refining activity and changes in inventory management, making it difficult to determine the exact impact on global supply and demand. The situation remains complex, with ongoing speculation about the extent to which China is drawing down its strategic reserves versus simply slowing its buildup.