On 29 September 2026, Brent crude settled at $102.59 a barrel, down 2.5% in a single day after the market saw signs that Middle East oil exports were recovering, even though the conflict and shipping risks had not disappeared.
That move captures an important feature of the oil market: oil does not rise simply because of the word “war”. Prices move with the number of physical barrels lost, the risk that more supply could disappear, transport costs, available inventories, replacement production or routes, and ultimately how much oil users are still willing to consume at higher prices.
So the question is not only whether geopolitical conflict can make oil more expensive. It is how far the price can be pushed, who bears the cost, and who may benefit when prices rise.
Oil does not move through a single mechanism
When conflict affects producing regions or oil transport routes, the market usually reacts through at least three mechanisms that need to be kept separate.
The first is Physical Supply Disruption, such as production being shut in, ports or pipelines becoming unavailable, fewer ships being able to use a key route, or sanctions removing some barrels from the tradable market. When fewer physical barrels reach buyers, the market tightens and the price has a fundamental reason to rise.
The second is the Geopolitical Risk Premium. Prices can rise before physical supply is actually lost because buyers, traders and operators must account for the possibility that routes or production may be disrupted later. Demand for inventories can increase, freight and insurance costs can rise, and sellers may require more compensation for taking risk.
A 2026 World Bank study estimates that during a Geopolitical Oil Supply Shock, oil prices respond more strongly to production losses than they do during a generic supply shock. In the report’s model, a 1% decline in production associated with a geopolitical shock is followed by an average peak oil-price increase of about 11.5%.
That number is not a price-forecasting formula. It should not be multiplied by a prospective production loss to create a mechanical price target, because the size of each event, inventories, spare capacity, demand and market responses differ. The research instead shows that when geopolitical risk is elevated, uncertainty and precautionary behaviour can make prices react more sharply than the contemporaneous physical loss alone would suggest.
The third mechanism works in the opposite direction: Demand Destruction, when high prices cause households or businesses to reduce consumption or switch to alternatives. If oil remains expensive long enough, some travel is cut, industrial processes change, other fuels are used and economic activity may slow. Weaker demand can therefore limit further price pressure.
2026 shows why physical barrels matter more than headlines
Before the 2026 crisis, the Strait of Hormuz was one of the world’s most important energy routes. The U.S. Energy Information Administration, or EIA, estimates that about 20.9 million barrels per day of oil and petroleum products moved through the strait in the first half of 2025. That was equivalent to roughly 20% of global petroleum-liquids consumption and about one-quarter of globally traded maritime oil.
Quarterly data show how severe the 2026 disruption became. EIA estimates Hormuz oil flows fell from about 21.6 million barrels per day in the fourth quarter of 2025 to 14.9 million in the first quarter of 2026 and just 4.9 million in the second quarter. EIA also cautions that 2026 estimates are revised frequently because AIS vessel-tracking signals in the area became especially unreliable after late February.
The World Bank estimates that global oil supply fell by about 10 million barrels per day in March and describes it as the largest oil-supply shock in the report’s dataset. Brent moved from around $72 a barrel at the end of February to about $118 at the end of March. This was not only a change in expectations. It was a large physical supply loss.
Some bypass capacity still existed. Saudi Arabia could move crude through the East-West Pipeline to the Red Sea, while the United Arab Emirates had a pipeline to Fujairah outside the Strait of Hormuz. Before the crisis, EIA estimated that the two systems together provided about 4.7 million barrels per day of additional bypass capacity. That could reduce the damage, but it was nowhere near enough to replace normal Hormuz flows.
Why did prices not rise without limit?
Looking only at the missing supply, the 2026 crisis might appear capable of pushing oil much higher than it did. But the global market had several buffers.
The IMF identifies three major shock absorbers from March through May: lower demand, especially in Asia; stronger-than-expected production outside the Gulf; and drawdowns of commercial and strategic inventories.
By the end of May, the IMF estimated that more than 1.1 billion barrels of crude had failed to reach the market relative to the supply path expected before the disruption. Yet after the initial spike, crude prices spent a period trading around $90 – $100 a barrel.
Price alone can therefore create the misleading impression that the market absorbed the shock at little cost. In reality, part of the burden had shifted into inventory depletion, higher production elsewhere, lower consumption and government measures that cushioned retail users.
By August those buffers had thinned further. The International Energy Agency, or IEA, reported that observed global oil inventories fell another 95 million barrels in August, taking cumulative draws since February to 507 million barrels, or an average of 2.8 million barrels per day. Its September report also estimated that more than 10 million barrels per day of Gulf production remained shut in because of security risks.
Oil therefore does not have to jump every time a new conflict headline appears. But as buffers are used up, the market becomes more vulnerable to the next disruption.
The cost extends far beyond the pump
For net oil-importing countries, the first effect is the import bill. If the same amount of energy costs more, the country has less purchasing power for other foreign goods and services or must find more foreign currency to pay for energy.
In economics, this links to the Terms of Trade, the relationship between export prices and import prices. If imported energy becomes more expensive faster than a country’s exports, an oil importer loses purchasing power at the national level.
Model-based analysis in the IMF’s 2024 External Sector Report finds that a Negative Oil Supply Shock tends, on average, to weaken the current account of energy importers and is associated with lower real income, consumption, investment and output. The effect is not identical across countries because it depends on energy-import exposure, exchange-rate conditions, fiscal space and the policy room available to governments.
For households, the burden can arrive through fuel, commuting, electricity, food and goods that require energy to produce or transport. Fuel-intensive businesses such as transport, aviation, logistics and manufacturing, as well as firms with weak pricing power, may see margins squeezed before they can pass higher costs to customers.
Retail prices do not immediately mirror world prices in every country. Governments may use subsidies, tax cuts or administered prices to soften the shock. IMF Working Paper 2026/148, using cross-country data and local-projection models, finds that pass-through from international prices to domestic retail fuel prices varies across regions, between importers and exporters, and with pricing policies. That does not eliminate the cost. It can shift part of the burden from consumers to public budgets.
Inflation can become a second-round cost
Higher energy prices raise inflation directly through fuel and energy. The more important question is whether the shock spreads into a broader set of prices, wages and inflation expectations.
The BIS notes that propagation from an Energy Shock depends on economic structure, initial inflation conditions, the size and persistence of the shock, and the emergence of Second-round Effects, where energy costs spill into other prices and wages. The monetary-policy response therefore depends on both the persistence of inflation pressure and the damage to growth.
If the energy shock is temporary, higher interest rates cannot produce more oil or reopen a shipping route. But if the shock becomes embedded in broader prices, wages and inflation expectations, central banks may need to keep policy tighter for longer than they would for a short-lived disturbance.
Consumers in some economies can therefore face more than one layer of cost: higher energy bills and tighter financial conditions for longer if inflation pressure persists.
Do oil exporters really benefit?
Sometimes, but not universally. If a producer can continue exporting normally, a higher price raises revenue per barrel and may improve trade balances and government income. The IMF notes that countries able to keep exporting oil and gas without disruption have faced smaller economic headwinds than other groups during the 2026 crisis.
Producers outside the conflict zone can also benefit from higher prices and additional market share if they have production available. Early in the crisis, higher non-Gulf output was one of the factors that helped close part of the global supply gap.
But exporters whose infrastructure is attacked, whose ports are closed, whose production is shut in or whose oil cannot reach buyers can lose revenue even while benchmark prices rise. Oil revenue depends on both price x volume sold. Calling all oil exporters “winners” therefore hides the most important differences.
Shipping routes are part of the oil price
Another cost that production data can miss is freight and insurance. When a main route becomes risky, exporters may switch to pipelines or different ports, but the alternative is not free and may face its own security risks. Reuters reported on 24 September, citing insurance-market quotes, that war-risk insurance for Saudi-linked vessels using Yanbu had risen to around 3% of vessel value and could reach 7% for some ports nearer Yemen. These were fast-moving market quotes, not fixed rates for the whole market.
That is why “the oil exists” is not the same as “the oil can reach buyers at the same cost”.
On 29 September, oil prices fell as regional exports recovered and more barrels moved through the East-West Pipeline and Yanbu. It is a clear example of how Physical Flow can push prices down or up even while geopolitical risk remains elevated.
History offers lessons, not a formula
The 1973 oil crisis, the Iranian Revolution in 1978 – 1979, Iraq’s invasion of Kuwait in 1990, Libya’s civil war in 2011 and Russia’s invasion of Ukraine in 2022 are examples of episodes that forced the oil market to reassess supply risk.
The World Bank study finds that when supply losses are tied to geopolitical risk, prices tend to respond more strongly than they do to ordinary supply losses because the market is not only pricing the barrels missing today. It is also pricing the risk that more could disappear later.
But each comparison needs caution. One episode may start with high inventories and another with depleted stocks. OPEC+ or non-OPEC producers may have more spare capacity in one period than another. Global growth may be weak enough to reduce demand in one shock, while governments may release strategic reserves in another. For that reason, similar geopolitical headlines do not necessarily produce the same oil-price outcome.
What should you watch to judge whether pressure is building or easing?
Start with the amount of oil that actually leaves the affected region, not only political statements. If exports and shipping routes recover, prices can fall even before a conflict ends.
Inventories matter just as much. Continued drawdowns leave the system with less protection and make the next disruption more consequential.
Freight, tanker rates and war-risk insurance are another useful signal. These show whether geopolitical risk is becoming a real cost of trading and delivering oil.
Also watch production outside the affected region, OPEC+ decisions, and Refinery Margins, especially in diesel. Finally, watch global demand. If high prices cut consumption quickly, demand itself starts to cap the price pressure.
No single number can answer how far war can push oil. Oil can stay high for longer when physical supply is lost for longer, inventories and replacement capacity are insufficient, and demand has not fallen enough to close the gap. Conversely, if export routes recover, other producers add supply and high prices weaken demand, oil can fall even while geopolitical risk remains.
For consumers and importing economies, the cost of the crisis is not measured by the price of one barrel alone. It also includes freight, inflation, public budgets and weaker growth. And the parties most able to benefit are not “all oil exporters”, but producers that still have barrels, still have an export route and can sell more into a tight market.
