Strait of Hormuz tensions, shrinking strategic reserves and disruptions to Russian oil infrastructure could keep crude prices elevated despite recent correction

Global crude oil markets may be underestimating the scale of geopolitical supply risks, according to Mirae Asset Sharekhan, which believes the recent correction in oil prices does not fully reflect the fragile state of global energy supplies. Although Brent crude has fallen below $85 per barrel after briefly approaching the $100 mark, the underlying risks surrounding Middle East tensions, shipping disruptions and tightening inventories remain firmly in place.

In a research note, Mohammed Imran, Research Analyst at Mirae Asset Sharekhan, warned that the market's optimism following a temporary easing of tensions between the United States and Iran may be premature. Physical crude supplies remain vulnerable, while multiple geopolitical flashpoints continue to threaten the global energy supply chain.

The report suggests that even a minor disruption in global crude flows could trigger a sharp spike in prices due to limited spare capacity and declining emergency inventories.

Temporary Calm Has Reduced Oil Prices—but Not the Risks

Oil prices retreated after the United States paused military action against Iran and Tehran refrained from retaliatory strikes on American military installations. Diplomatic talks mediated by Oman have also provided some relief to financial markets, encouraging traders to unwind part of the geopolitical risk premium.

However, Mirae Asset believes the easing in prices reflects improved sentiment rather than a genuine improvement in supply fundamentals.

According to the report, the geopolitical environment remains highly unstable, and any deterioration in negotiations could rapidly reverse the recent decline in crude prices.

Strait of Hormuz Remains the World's Most Critical Energy Chokepoint

The Strait of Hormuz continues to be the single biggest source of uncertainty for global oil markets.

Nearly one-fifth of the world's oil trade passes through this narrow shipping corridor connecting the Persian Gulf with international markets.

Recent security concerns have reduced tanker traffic through the region, while the International Maritime Organization has warned that navigation risks remain elevated.

Although Saudi Arabia and the United Arab Emirates possess alternative export pipelines, these routes cannot fully compensate for the enormous volumes normally transported through Hormuz.

Mirae Asset estimates that:

• Around 8–9 million barrels per day can currently be rerouted through alternative infrastructure.

• Nevertheless, approximately 7–9 million barrels per day would still remain dependent on the Strait of Hormuz.

This continued dependence means any escalation could immediately tighten global oil supplies.

Global Supply Chain Faces Multiple Pressure Points

The Middle East is not the only factor contributing to supply uncertainty.

The ongoing Russia-Ukraine conflict continues to disrupt global crude production and refining capacity.

Ukraine's drone attacks on Russian energy infrastructure have damaged refineries and reduced processing activity, leading to tighter availability of refined petroleum products.

According to the report:

• Russian crude production has declined to approximately 8.3 million barrels per day, marking its lowest level in over two years.

• Refinery utilisation has fallen sharply following repeated attacks on energy infrastructure.

These disruptions have contributed to higher fuel prices across Europe while increasing pressure on global refining margins.

Strategic Oil Inventories Continue to Shrink

Another key concern highlighted in the report is the rapid depletion of emergency oil reserves.

To stabilise markets during recent supply disruptions, OECD countries released approximately 700 million barrels from strategic petroleum reserves between March and June.

While these releases helped moderate prices, they have significantly reduced the world's emergency inventory buffer.

With fewer reserves available, future supply shocks could result in much sharper price movements than seen during previous geopolitical crises.

Shipping Bottlenecks Continue to Build

Shipping data suggests physical oil markets remain tighter than financial markets currently indicate.

According to tanker tracking data:

• Crude stored on tankers stationary for at least seven days rose to approximately 102.84 million barrels during the week ending July 24.

• Reduced vessel movement reflects increasing logistical challenges and elevated maritime security risks.

Longer shipping delays could tighten prompt crude availability and increase freight costs for refiners worldwide.

India Could Face Higher Import Costs

India remains among the world's largest crude oil importers, making it particularly vulnerable to sustained oil price volatility.

With refining capacity of nearly 5 million barrels per day, Indian refiners rely heavily on imports from the Middle East and Russia.

Higher crude prices could affect:

• Fuel inflation.

• Import bills.

• Refining margins.

• Current account deficit.

• Corporate profitability.

• Government fiscal management.

Any disruption in Gulf exports or Russian refined product supplies would further complicate India's energy procurement strategy.

Inflation Risks Could Return

A sustained increase in crude oil prices would have broader macroeconomic consequences beyond the energy sector.

Higher fuel prices typically raise transportation and manufacturing costs, which eventually feed into consumer inflation.

Persistent inflation could:

• Delay global interest rate cuts.

• Increase borrowing costs.

• Slow economic growth.

• Pressure corporate earnings.

• Reduce consumer spending.

For central banks already balancing inflation against slowing growth, another oil price shock could complicate monetary policy decisions.

Sectoral Impact on Equity Markets

Potential Beneficiaries

Companies operating in:

• Oil exploration and production.

• Offshore services.

• Oilfield equipment.

• Energy infrastructure.

• Tanker shipping.

could benefit from stronger crude prices and increased demand for transportation services.

Likely Under Pressure

Industries sensitive to higher fuel costs include:

• Aviation.

• Logistics.

• Chemicals.

• Paint manufacturers.

• Tyre companies.

• Cement producers.

• Oil marketing companies, particularly where retail fuel prices remain regulated.

Investors may also witness greater market volatility as energy prices influence inflation expectations.

Brent Crude Outlook: Wide Trading Range Ahead

Mirae Asset expects Brent crude to remain highly volatile over the coming months.

Bullish Scenario

If geopolitical tensions intensify further, Brent could trade between $90 and $110 per barrel, supported by:

• Escalation around the Strait of Hormuz.

• Further attacks on Russian infrastructure.

• Lower global inventories.

• Rising tanker insurance premiums.

• Continued supply disruptions.

Bearish Scenario

Should diplomatic negotiations between Washington and Tehran progress successfully and shipping flows normalise, Brent crude could gradually ease towards an average of around $80 per barrel during the fourth quarter.

However, analysts believe this scenario depends on sustained geopolitical stability, which remains uncertain.

Key Indicators Investors Should Track

Over the coming weeks, investors should closely monitor:

• US-Iran diplomatic developments.

• Shipping activity through the Strait of Hormuz.

• OPEC+ production decisions.

• Russian crude production.

• OECD inventory levels.

• Tanker freight rates.

• Global refinery utilisation.

• Chinese and Indian crude demand.

These variables will likely determine whether crude prices stabilise or resume their upward trajectory.