Brent crude lost nearly 10% this week—its steepest slide in two months—as traders priced in a deal that hasn't been signed yet.
President Donald Trump said Saturday that a peace deal with Iran that would reopen the Strait of Hormuz is "largely negotiated" and will be announced shortly, a development that could end a conflict that has choked global energy markets and pushed U.S. inflation to its highest level in years. Markets moved fast. Oil prices slid as Trump said the U.S. is close to an Iran deal, with the agreement involving a 60-day ceasefire extension during which the Strait of Hormuz would be reopened, Iran would be able to freely sell oil, and negotiations would be held on curbing Iran's nuclear program, which would avoid an escalation of the war and decrease the pressure on the global oil supply. According to market data, Brent crude traded at $75.20 per barrel on Thursday, up 0.5% on the day but down sharply for the week.
Yet the relief rally may be premature. The International Energy Agency has characterized the Hormuz closure as the "largest supply disruption in the history of the global oil market."
Chevron's CEO Mike Wirth indicated on May 29 that oil prices are likely to increase in the coming months as U.S. crude inventories continue to decline, with inventories falling by 3.3 million barrels to a total of 441.7 million barrels—approximately 2% below the five-year average.
Wirth stated at a recent Milken Institute discussion that "We will start to see physical shortages," and that "Demand needs to move to meet supply," which also likely means that "economies are going to have to slow."
Can a Deal Actually Reopen the Strait?
The diplomatic framework is fragile. During the proposed 60-day period, the Strait of Hormuz would be open with no tolls and Iran would agree to clear the mines it deployed in the strait to let ships pass freely, while in exchange, the U.S. would lift its blockade on Iranian ports and issue some sanctions waivers to allow Iran to sell oil freely.
Iran's state-affiliated Fars news agency has disputed Trump's characterization, reporting that the Strait of Hormuz will remain under Iranian control according to the latest version of the proposal exchanged between the US and Iran.
Even if the deal holds, the damage is done. With crude and oil product flows through the Strait of Hormuz plunging from around 20 mb/d before the war to a trickle currently, limited capacity available to bypass the crucial waterway, and storage filling up, Gulf countries have cut total oil production by at least 10 mb/d, and in the absence of a rapid resumption of shipping flows, supply losses are set to increase.
Gulf states and Iraq lose approximately $1.1 billion per day in oil revenue while the strait remains closed. That's $46 million every hour.
The physical infrastructure tells a grimmer story than the futures curve. Persian Gulf oil production has declined 57% since the war began according to Goldman Sachs, with the global economy offsetting this impact by drawing oil from inventories at a rate of more than 10 million barrels per day, causing global stockpiles to plunge to an eight-year low of around 101 days of expected demand.
The most underappreciated dimension of the current disruption is the pace at which buffer capacity is being consumed—strategic petroleum reserves exist precisely for scenarios like this, but their capacity is finite, and their depletion rate during an extended Hormuz disruption is unprecedented in modern energy market history, and once reserve capacity falls to critically low levels, the market loses its shock absorber.
Who's Scrambling for Alternatives?
Some countries aren't waiting for diplomacy. The Philippines received an Iranian crude cargo this month according to ship-tracking data, likely the country's first since the Iran war disrupted supplies from the Middle East, with the Suezmax tanker Ocean Start delivering Iranian crude to Petron's Bataan refinery on May 17 according to data from Kpler.
The Ocean Start received the cargo in early May through a ship-to-ship transfer in waters off Singapore with another Suezmax tanker Kylo, which loaded the crude at Iran's Kharg Island on March 27, and the Trump administration granted a 30-day waiver on sanctions related to purchases of Iranian oil at sea from March 20 to April 19, in a bid to ease oil prices that had surged following the US-Israeli conflict with Iran.
The delivery underscores desperation. As the Philippines imports 98% of its oil from the Middle East, the country was severely affected by the crisis in the Strait of Hormuz, and on March 24, 2026, President Bongbong Marcos declared a state of national energy emergency, stating that the Philippines had sufficient crude oil supply until June 30.
India, the world's fastest-growing major economy, is among the countries most vulnerable to the supply disruptions caused by the Iran war, as the South Asian country imports nearly 85% of its fuel needs and relies on the Strait of Hormuz for about 50% of its crude imports, 60% of its liquefied natural gas, and almost all of its liquefied petroleum gas supplies.
India's central bank is sounding alarms. The Reserve Bank of India said in its Annual Report for 2025-26 published on Friday that India's economy remains resilient to the external shocks, but the oil price surge amid the global supply disruption poses near-term downside risks to economic growth and upside risks to inflation, with the outlook for the Indian economy in 2026-27 remaining positive, supported by strong macroeconomic fundamentals, although a prolonged West Asia conflict may pose downside risk.
Assuming that the adverse impact of the Middle East conflict would remain contained in the near term, India's real GDP growth for 2026-27 ending March 2027 is projected at 6.9% with risks tilted to the downside, and CPI inflation for 2026-27 is projected at 4.6 per cent with risks tilted to the upside.
