Three months of Hormuz blockade: Why hasn't the oil price surged past $150?

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The blockade of the Strait of Hormuz has lasted for about three months. Although international oil prices have surpassed $100 per barrel, they are still far from the $150 mark that many analysts previously expected.This seemingly calm market performance does not mean the supply shock has been absorbed; rather, the global oil system is "buying time" through three buffers—stocks, spare capacity, and demand contraction. Once these buffers are depleted, the real impact on oil prices may only just begin.

Oil prices have risen significantly, but current levels are still lower than the peak after the outbreak of the Russia-Ukraine conflict in 2022, and far from the historic highs before the 2008–2009 financial crisis. The orderly operation on the surface of the market masks a safety margin that is being eroded at an accelerating pace.

For investors, current price levels may be misleading. They reflect the market's ability to absorb the initial shock, not its ability to sustain this balance over time. As buffer resources are gradually exhausted, system vulnerability will continue to rise, and the path toward $150 oil is becoming increasingly clear.

Stocks: The seemingly steady "shock absorber" is failing

The main reason the oil market has not reacted more violently is that global stocks were higher than expected before the crisis. These stocks have acted as buffers, delaying—rather than eliminating—the impact of the supply shock.

Data shows that global commercial stocks have continued to decline for several weeks, and OECD member country inventories have fallen below the five-year average. According to independent tracking agencies like Vortexa and Kpler, floating storage has also shown a steady downward trend. On the charts, this process appears orderly and moderate, with prices rising but no explosive surge.

However, stocks are not strategic reserves, but are the minimum working inventory needed to maintain refineries, pipelines, and logistics operations. Once stocks fall below this operating threshold, the flexibility of the entire system will be lost—refineries will have fewer crude options, allocation will be more difficult, and small disturbances that could previously be easily absorbed will start to have greater impacts.

More critically, the consequences of stock depletion are delayed. Weekly data may look uneventful, but when the system runs out of buffer space, the consequences will emerge all at once. Moreover, the more barrels used as buffers, the harder and longer it will take to replenish them later.

Spare capacity: Limited and non-interchangeable

Another reason the market has not panicked more is the widespread belief that OPEC still holds spare capacity.

On paper, this is true. Saudi Arabia and a few other producers do have the ability to ramp up output. But in practice, spare capacity cannot fully replace the lost supply from the Persian Gulf.

There are three reasons: First, not all crude oil is interchangeable—different grades require different refinery configurations. Second, the release of capacity is not instantaneous, and even if capacity exists, bringing it into production takes time and coordination. Third, and most crucially, spare capacity itself is limited. Using it to fill a major supply gap directly compresses the system's room for error in coping with future shocks. Once this buffer is gone, the market's sensitivity to any further disturbance will rise dramatically.

Thus, spare capacity has played a role in stabilizing prices in the short term, but has not eliminated the fundamental supply-demand imbalance.

Cooling on the demand side: Marginal effect rather than structural change

Changes on the demand side have also to some extent curbed the rise in oil prices.

High oil prices naturally lead to some degree of demand destruction: consumers drive less, airlines hedge risk or cut routes, industrial users seek efficiency. In emerging markets, fuel consumption is especially sensitive to price increases. At the same time, uneven global economic growth has softened demand to some extent, partly offsetting the impact of the supply shock.

But this is not a structural decline in demand, merely a temporary marginal easing. Once economic activity picks up, or consumers gradually adapt to the high price environment, demand could rebound quickly. At that point, all buffer mechanisms currently supporting market operation will come under greater pressure.

Two paths: normalization or price revaluation

Based on the current situation, the market faces two very different trajectories.

The first is easing. If the Strait of Hormuz reopens or oil flows partially resume, the market can rebuild inventories and restore supply-demand normalization. In this scenario, oil prices may stabilize or even fall from current levels, but in the short term are unlikely to return to pre-blockade prices.

The second is continuation. If the blockade persists, stocks will continue to decline, spare capacity will be further depleted, and system error tolerance will disappear. At that point, the market will be forced to radically reprice the remaining supply. This is when oil's path toward $150 becomes more credible—not necessarily because of a new shock, but because all buffers have been exhausted.

Three months of blockade failing to push oil prices to $150 suggests the market has more short-term flexibility than many anticipated. But flexibility does not mean durability. The current equilibrium relies on resources that are being quickly exhausted and are hard to replenish. Against this backdrop, the absence of a dramatic price surge should not be interpreted as a sign that risks are resolved, but rather as a warning that the adjustment process is still underway.

Risk warning and disclaimerThe market is risky; investment requires caution. This article does not constitute individual investment advice and does not take into account the special investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investments made accordingly are at investors' own risk. ```