Energy Markets · Geopolitics

Traders Adjust to Prolonged Energy Squeeze Amid Middle East Conflict

Traders are increasingly anticipating a sustained period of tight oil and liquefied natural gas (LNG) supplies as the conflict in the Middle East shows no signs of a swift resolution.

News AutomationCompiled 01:08 UTC · 1 min read

Tanker traffic through a critical oil chokepoint has drastically reduced amid ongoing conflict.

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Hope Fades, Traders Brace for Extended Oil, LNG Squeeze By Irina Slav - Aug 19, 2026, 6:00 PM CDT

The oil market is finally pricing in a prolonged Hormuz crisis, with flows through the strait down to roughly 11% of pre-war levels.
Diesel and other refined fuels face an increasingly severe squeeze, pushing crack spreads and consumer prices sharply higher.
The IEA expects global oil supply to fall 4.3 million bpd this year, potentially deepening the energy crunch as the conflict drags on.

Khafji oil field

For most of the past six months, traders active on the commodity futures markets have been mostly optimistic. They have taken every statement by President Donald Trump about peace talks or victory over Iran at face value, betting on a speedy end of the war. Now, it has started to dawn on many that this is not happening. The physical squeeze is catching up with the market.

Earlier this week, the Wall Street Journal reported that a diesel shortage that has been brewing since spring is now growing increasingly severe and about to become even more severe as demand rises in autumn and winter. In other fuels, the squeeze has not been as pronounced, but it is there, simply because both the Middle East and Russia were significant refined fuel exporters until war changed things.

It is not only refined fuels that are in increasingly short supply, however. Crude oil supply is getting squeezed as well, and it seems that the U.S. president’s powers of persuasion are running out of effectiveness, as Reuters’ Ron Bousso reported this week that traders are starting to price in an extended crisis in the Middle East.

Oil flows via the Strait of Hormuz have averaged some 2 million barrels daily, Bousso wrote, quoting data from Kpler. This is down from a July average of 4.8 million barrels daily. That, in turn, was down from average pre-war levels of 18 million barrels daily. In other words, tanker traffic via the chokepoint is currently barely 11% of what it used to be before the U.S. and Israel launched their strikes on Iran.

Attacks on tankers continue, while both U.S. and Iranian rhetoric has hardened, with Iran threatening to break the U.S. naval blockade with “a timely and precise” strike, according to an unnamed Iranian official quoted by Bousso. President Trump insists the Strait of Hormuz is open while Iran says it is still shut down—and tanker-tracking data supports it. One thing both sides appear to agree on is that no peace talks are taking place currently. This only reinforces the perception that both are digging in for the long haul, meaning a prolonged period of elevated energy prices—especially in fuels. Related: EIA Shows Crude Oil Inventories Still Rising

Earlier this week, Jeff Currie became the latest analyst to warn that watching Brent crude prices does not give one a clear look into the real crisis, which is in fuels. “Nobody on the planet earth consumes crude oil,” Currie told CNBC, echoing a remark made by Energy Aspects’ Amrita Sen earlier this year to highlight the fact that futures prices of crude oil benchmarks may not be the most accurate representation of the supply and demand situation on the physical market that the world, in fact, uses.

Brent crude may be trading at $91 per barrel, but Iran’s oil exports alone have shrunk from 294,000 barrels daily since the start of August, from 1.7 million barrels daily last year, and Iran’s oil exports are not the only ones that have shrunk. Per Kpler data cited by Bousso, total oil exports from the Middle East so far this month have averaged 9.5 million barrels daily. That would be down from 21 million barrels daily for 2025.

The International Energy Agency said in its latest Oil Market Report it expected global oil supply to drop by 4.3 million barrels daily for the full year, which was a pessimistic revision of earlier forecasts about a decline of 3.7 million barrels daily. This would translate into a supply shortfall of 1.27 million barrels daily, and “supply shortfall” is a nicer way of saying “deficit”.

This would mean 4.3 million physical barrels of crude daily that can be refined into the usable form of fuels and petrochemicals—but they will not be, if the IA’s scenario materializes. And this, in turn, would mean even higher crack spreads and higher end prices for gasoline, diesel, and jet fuel, with the respective unpleasant implications for the broader economy since energy costs make up the foundation for all other costs.

To be fair, Middle East oil producers are finding ways around the Hormuz bottleneck. Saudi Arabia has redirected its exports and the UAE has actually boosted its own exports, again as suggested by Kpler data that saw these higher in August than their average for last year. However, the UAE recently accused Iran of launching two ballistic missiles against its territory, meaning Emirati tankers may not be safe in the Strait of Hormuz. Indeed, they are not: ADNOC tankers have frequently become targets for Iranian strikes. Meanwhile, any planned new pipelines to divert flows away from Hormuz would take years to build.

In other words, what was widely considered to be a short, sharp but not too painful squeeze on oil and gas has turned into a full-blown crisis with no prompt end in sight. Both the United States and Iran are feeling the economic pain from the war, as noted by Reuters’ Bousso, but both appear determined to endure that pain for an extended period of time. Until one of them blinks, the energy squeeze will only deepen.

By Irina Slav for Oilprice.com

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Irina Slav

What I Cover Irina Slav has been writing about global energy markets since 2007, covering the oil and gas industry, energy security, commodities, and the…

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