Traders are increasingly pricing in a prolonged energy squeeze as physical market tightness in refined fuels and liquefied natural gas (LNG) intensifies, despite elevated crude futures prices. Flows through the Strait of Hormuz, a critical chokepoint for oil and gas exports, have fallen to roughly 11% of pre-war levels, according to tanker-tracking data cited by Reuters.
Diesel and other refined products face the most severe squeeze, with crack spreads and consumer prices climbing sharply. The International Energy Agency (IEA) now expects global oil supply to decline by 4.3 million barrels per day (bpd) in 2025, a downward revision from its prior forecast of a 3.7 million bpd drop. This would leave a supply shortfall of 1.27 million bpd, deepening the energy crunch as the Middle East conflict persists.
The physical market’s strain contrasts with the relative stability of crude futures, which remain elevated at around $91 per barrel for Brent. Analysts, including Jeff Currie of Goldman Sachs, have highlighted the disconnect, noting that crude benchmarks do not fully reflect the physical supply constraints affecting the fuels and petrochemicals that end-users actually consume. Iran’s oil exports, for example, have fallen to 294,000 bpd since August, down from 1.7 million bpd last year, while total Middle East exports averaged 9.5 million bpd this month, compared with 21 million bpd in 2025, according to Kpler data.
The prolonged disruption has forced regional producers to reroute exports, with Saudi Arabia redirecting shipments and the UAE boosting its own. However, the UAE’s recent accusation that Iran launched ballistic missiles at its territory underscores the escalating risks to tankers transiting the Strait of Hormuz. ADNOC tankers have repeatedly been targeted by Iranian strikes, and planned new pipelines to bypass Hormuz remain years from completion.
Both the U.S. and Iran appear determined to endure the economic pain of the conflict, with no immediate signs of de-escalation. Until one side relents, the squeeze on oil and LNG supplies is expected to deepen, further straining refined fuel markets and pushing crack spreads higher. The IEA’s revised supply forecast suggests the deficit could persist, with broader economic implications as energy costs underpin broader inflationary pressures.
