Crude oil prices drop, but is the damage already done?

NEW DELHI (TIP): Crude oil prices may have eased from recent highs following a temporary US-Iran ceasefire, but the relief is deceptive. The recent spike was not just a reaction to geopolitical headlines. It reflected a disruption to how oil moves through the global system, and those effects are already feeding through the world economy. At the peak of tensions, tanker movement through the Strait of Hormuz slowed sharply, with several vessels halting or reversing course amid security risks. The waterway carries roughly a fifth of global oil supply, making even short- lived disruption significant. But the shock was not limited to transit delays. It extended to the broader operating environment around Gulf energy exports, where shipping schedules were disrupted, insurance costs surged and export operations at key terminals were constrained. In several cases, operators slowed or temporarily halted loadings due to security concerns, effectively tightening supply even where production capacity remained intact. DISRUPTION ACROSS SUPPLY CHAIN What has been affected is not just production, but the entire chain that connects oilfields to global markets. Export terminals in the Gulf have faced operational delays due to heightened security protocols and vessel congestion, while storage and blending facilities have been impacted by slower offtake, creating upstream bottlenecks. Pipeline flows feeding crude to ports have also seen interruptions or reduced throughput as operators prioritise safety during heightened risk conditions. This does not necessarily mean permanent destruction of capacity. But oil supply depends on coordination. When terminals slow, pipelines back up. When shipping halts, storage fills. When insurance costs spike, cargoes are delayed. The result is an effective tightening of supply reaching the market. Justin Khoo, Senior Market Analyst for APAC at VT Markets, said the scale of disruption is far from typical. “Even with signs of a ceasefire, the oil market is unlikely to normalise in the near term, as the scale of disruption to global supply remains unprecedented,” he said, adding that estimates suggest 12 to 15 million barrels per day have effectively been removed from the market, with nearly one billion barrels at risk in the near term. The key question now is not whether the Strait of Hormuz reopens, but how quickly normal supply conditions can be restored.