The Strait's Aftershocks

Gulf oil producers have lost around 14 million barrels per day of supply since the end of February , the IEA said. That's roughly equivalent to shutting down the entire U.S. shale industry overnight. Three months into the Hormuz crisis, the global oil system is still standing—but only because it's being held together by emergency stockpile releases, demand destruction, and a scramble to build infrastructure that bypasses the world's most critical chokepoint entirely.

Global oil inventories could hit critical levels ahead of the peak summer demand period if stock draws continue at their current pace, the head of the IEA's oil industry and markets division said Tuesday . It could take six to eight months in the best-case scenario to reopen the Strait of Hormuz if an agreement was reached today , Toril Bosoni told the S&P Global Energy conference in London. That timeline—assuming peace breaks out immediately—means the world is racing against a ticking clock with no margin for error.

Can Pipelines Replace a Strait?

The UAE has completed nearly 50% of a second pipeline that will bypass the Strait of Hormuz , ADNOC CEO Sultan Ahmed Al Jaber said Wednesday. The West-East pipeline, which will double ADNOC's export capacity through Fujairah, is expected to be operational in 2027 . The existing Abu Dhabi Crude Oil Pipeline can carry up to 1.8 million barrels per day; the new line would add similar capacity.

But here's the problem: due to the war, the UAE is producing between 1.8 and 2.1 million barrels per day —down from just over 3 million before the conflict. Even when both pipelines are running at full capacity, they won't come close to restoring the 14 million barrels per day that used to flow through Hormuz from all Gulf producers combined. The critical limitation of both bypass systems is that even their combined theoretical maximum throughput falls well short of the volume that normally transits Hormuz under ordinary conditions .

Saudi Arabia's East-West pipeline to the Red Sea offers another route, but it introduces a different set of risks. Houthi forces operating in the Red Sea have demonstrated the capacity to target commercial shipping and energy infrastructure, meaning that routing crude to Yanbu does not eliminate conflict exposure—it merely exchanges one risk category for another .

The Financial Times reported that Adnoc is planning a new UAE pipeline to bypass Hormuz, with Bloomberg adding that the bypass may also include refined fuels. The message from Gulf producers is clear: Hormuz's stranglehold on their exports is a vulnerability they will not tolerate again.

Why Is China Letting Refiners Cut Back?

In a striking reversal, China's state planner has now issued notices to some loss-making independent refiners that they can reduce fuel output from June to no lower than 80% of last year's monthly average , Reuters reported. In the early weeks of the Iran war, Chinese authorities directed the private refiners, the so-called teapots, to maintain high levels of gasoline and diesel supply, even at a loss, or risk their crude import quotas slashed if they reduce run rates .

The about-face reflects a simple reality: China's stockpiles are full. China has allowed some independent refiners to reduce processing rates amid mounting losses as Chinese crude and fuel stockpiles remain comfortably high despite the Middle East crisis . The IEA noted that Chinese crude imports were 6 million barrels per day lower in May compared with March, which had been a balancing factor in markets and explains weaker prices despite the Hormuz closure .

That demand pullback is doing more to stabilize oil prices than any supply-side intervention. The scale of the supply losses are so big that the reduction would have to come from the demand side , Bosoni said. High prices are destroying demand faster than producers can ramp up alternative supply routes. Brent futures were trading just below $94 per barrel by 1139 GMT on Tuesday, between their pre-war level of around $70 but far from their 2026 high of over $126 .

Who's Winning the Fuel Reshuffle?

While Gulf producers scramble to build pipelines and Chinese refiners cut runs, Nigeria's Dangote refinery has emerged as an unlikely beneficiary of the crisis. According to S&P Global Commodities at Sea data, Dangote Refinery became the single biggest aviation fuel exporter in April 2026 .

Nigeria's 650,000 barrel per day Dangote oil refinery has a large surplus of jet fuel and can supply the product all over the world, with demand on the African continent lower than other regions , CEO David Bird told the S&P conference Tuesday. Jet fuel has been one of the fuels most acutely affected by the Iran war and closure of the Strait of Hormuz, presenting refiners based outside the Gulf region, such as Dangote, the opportunity to supply global markets .

The refinery's rise illustrates how quickly global trade flows can pivot when traditional routes collapse. What was designed as a domestic fuel security project for Nigeria has become a critical supplier to European aviation markets that can no longer rely on Middle Eastern jet fuel.

Meanwhile, a quieter story is unfolding in LNG markets. Bloomberg reported that Persian Gulf LNG exporters are adopting shadow-fleet tactics to move cargoes through Hormuz. Major liquefied natural gas exporters in the Persian Gulf are preparing for a potential future where disruptions in the Strait of Hormuz persist for longer . The methods—turning off transponders, using opaque ownership structures, employing older vessels without Western insurance—mirror the tactics Russia has used for years to evade sanctions.

What About U.S. Power Markets?

The Hormuz crisis is also exposing vulnerabilities closer to home. The price of electricity paid by U.S. residential customers averages 18.2 cents per kilowatthour in 2026, representing a nearly 5% increase from 2025 , the EIA reported. Regions along the East Coast will experience the largest increases in residential prices, with average annual growth ranging from 5% to 7% between 2024 and 2027, as electric utilities cite higher fuel prices for generation and expenses for bolstering the transmission grid .

Natural gas prices—which set the marginal cost of electricity in most U.S. markets—have become more volatile as LNG export demand competes with domestic power generation. According to market data, Henry Hub natural gas traded at $3.25/MMBtu on Monday, down 2.4% as faltering LNG export demand outweighed bullish forecast trends , Natural Gas Intel reported.

The irony is sharp: even as oil prices have moderated from their March peaks, electricity prices continue climbing. The EIA forecast wholesale electricity prices to reach $51/MWh in 2026, an 8.5% increase, driven primarily by a projected 45% increase at the Electric Reliability Council of Texas-North pricing hub . The Hormuz crisis may be thousands of miles away, but its effects are showing up in American utility bills.

What Changed This Week

The IEA warned that oil inventories could reach historically low levels just as summer driving season peaks, raising the specter of another price spike. The UAE announced its Hormuz bypass pipeline is halfway complete, but it won't be operational until 2027—far too late to matter for this crisis. China, meanwhile, has quietly shifted from forcing refiners to run flat-out to allowing them to cut back, a tacit acknowledgment that high prices have already done the demand-killing work that emergency measures were meant to avoid. And Nigeria's Dangote refinery claimed the title of world's largest jet fuel exporter, a role no one predicted six months ago.

What to Watch

The IEA's next monthly oil market report, due mid-June, will reveal whether inventory draws are accelerating or stabilizing. Watch for any announcement from Iran or the U.S. on ceasefire negotiations— Bosoni said a further IEA-coordinated emergency stock release is a possibility, though not currently being discussed as around half of the initial 400-million-barrel coordinated release from March is yet to hit the market . ADNOC's construction timeline for the West-East pipeline will signal whether the UAE believes Hormuz will reopen soon or remain a long-term risk. And keep an eye on U.S. natural gas prices through June: if LNG export demand picks up as summer cooling demand rises, electricity markets could face a squeeze that makes the oil shock look mild by comparison.