Quick Bites | What did the Iran War teach us about Oil Markets?

Abundant reserves, alternative supplies and the AI boom helped mitigate the economic harm. This article is based upon a piece published by Jason Douglas and Chelsey Dulaney of the Wall Street Journal on 17 June 2026.

• The global economy was surprisingly resilient and avoided a severe shock despite the 3 months long closure of the Strait of Hormuz.
• Many countries were well-prepared with strategic oil reserves (but not Australia) – and the global oil market adapted well with alternative export routes.
• China reduced oil imports by drawing from reserves, and the AI boom helped offset the energy crisis.

One of the surprises of the 100 days closure of the Middle East’s most critical energy conduit was that the global economy didn’t suffer a more severe shock. The pain was neither as intense nor disruptive as it was following Russia’s invasion of Ukraine in 2022 or the oil crises that rocked the world in the 1970s.

While Australia was not well prepared, many other countries were. Major importers in Europe and Asia (China, Japan, Malaysia, South Korea) were well-stocked with strategic reserves, and commercial inventories were healthy. That gave many economies a cushion to ride out the shock with only limited disruption.

Source: WSJ

The burden of the supply crunch fell more on poorer countries that cannot afford large reserves. Some, such as Bangladesh and Sri Lanka, curbed demand for oil with fuel rationing. Others closed schools and offices and restricted the use of air conditioning.

According to the IAEA, global oil demand is estimated to fall by around 5%, or roughly 5 million barrels a day, in the second quarter of the year. That is smaller than the roughly 10% declines in oil demand experienced during the Iran-Iraq war in 1980, the 1973 Arab oil embargo and the Suez Crisis in 1956, underscoring how oil shocks have gotten easier to manage.

The global oil market is adaptable

Fears that the Hormuz crisis would propel oil to $150 or even $200 a barrel were not realised. Middle Eastern energy producers found ways around the closure of the strait faster than experts predicted, while other producers such as the US stepped up production and exports.

Exports from Saudi Arabia’s Red Sea port of Yanbu have jumped to around 4 million barrels a day from less than 1 million before the war. The United Arab Emirates turned to pipeline exports, sending crude from Abu Dhabi to the port of Fujairah on the Gulf of Oman.

Source: WSJ

Source: WSJ

US oil exports soared to new records. Venezuela’s oil exports have risen 43% in the past 3 months compared with a year earlier, while Brazil’s exports have jumped by a third.

China reduced oil imports

Chinese imports of oil fell by around 3 million barrels a day, yet there was little visible sign of disruption in the world’s second-largest economy and foremost manufacturer. Beijing drew from its vast strategic reserves and found other suppliers to cushion the losses from the strait. Refineries cut back production to conserve crude supplies.

Source: WSJ

China has also reoriented its economy to use less imported oil: Electricity generation is increasingly powered by coal and renewables, and Chinese drivers have been ready adopters of electric vehicles. While Chinese producer prices rose and retail spending fell in May, its resilience and that of other Asian economies exposed to the closure of the strait helped keep the global economy humming.

The world is using energy more efficiently

The IMF said in April that improvements in energy efficiency were helping to mitigate the shock from the Iran war. One way to gauge how effectively economies are using energy is to calculate the amount of energy burned to generate a dollar of gross domestic product. Adjusted for inflation, energy intensity has fallen by about a third since 2000 in the US and Europe and by about 40% in China, according to World Bank data.

Source: WSJ

Advanced economies have shifted to less energy-intensive services such as finance and healthcare from more energy-hungry manufacturing. Renewables have played a role, as energy sources such as solar and wind lose less energy to heat than burning fossil fuels. Consumer appliances have been re-engineered to use less electricity and firms have squeezed out improvements in industrial processes to save energy.

The AI boom offset the energy drag

Global economic growth has been surprisingly resilient. The artificial-intelligence boom has been a major counterweight to the energy crisis. The rapid build-out of data centres in the US and the excitement around the technology’s potential have lifted trade and investment and pushed stock markets to record highs.

The benefits have been most keenly felt in Asian economies that provide the memory chips, machinery and electronics needed to power the AI boom. The value of Taiwan’s exports has more than doubled since the beginning of 2025. South Korea’s exports are up almost 80%, Singapore’s are up 40% and Japan’s are up by almost 20%. This technological gold rush has propelled economic momentum in key parts of the global economy even as the oil squeeze hurt others.

Source: WSJ