The global oil market has entered another period where geopolitics is setting the tone, while weaker demand and rising inventories are trying to pull prices back down. That tension between physical risk and economic reality is what now defines the market.

After the June peace agreement between the United States and Iran, oil markets temporarily relaxed. Brent crude fell to around $69 per barrel on July 2, reflecting hopes that supply risks in the Gulf might ease and maritime flows could stabilize. But all this won't last long. Renewed attacks on tankers passing through the Strait of Hormuz, along with lower crude shipments later in July, pushed Brent sharply higher. At one point, Brent reached $105 per barrel on July 23 before retreating again. Now it is trading near $87, while WTI, or Light crude, is hovering around $82. This once again shows how unstable the oil market has become.

The reason the Strait of Hormuz matters so much is straightforward. It is one of the most important energy chokepoints in the world. As we mentioned earlier, the Strait of Hormuz has remained the main stumbling block in diplomatic efforts between Iran and the USA. It is alternately closed and opened. Iran believes that only Tehran and Muscat can monitor navigation in the Strait of Hormuz, while Donald Trump asserts that the US will not allow Iran to charge fees for passage through the strait.

Roughly one-fifth of global oil shipments move through Hormuz. If that corridor is disrupted, even for a limited period, the effect goes far beyond the Gulf. Shipping insurance costs rise, vessel availability tightens, refiners worry........

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