Energy markets are adapting to the Iran war as a ‘forever conflict’ while oil producers keep supplies flowing and avoid ‘mutually assured destruction’

As Iran continues its attacks on tankers in the Strait of Hormuz, global oil markets have largely managed to avoid the worst-case scenario of "mutually assured destruction." Despite Iran's persistent threats to target energy infrastructure, oil supplies from the region have actually exceeded pre-war levels, with shipments through the strait and alternate routes averaging over 24 million barrels a day last week.

This is higher than the average of 23.3 million barrels before the U.S. and Israel initiated the war in late February. While some tanker activity has been deterred by the threat of Iranian attacks, lucrative shipping routes continue to attract ships willing to take the risk. Pipelines that circumvent the strait are also picking up the slack, and top oil consumers have lowered their demand to offset the impact.

Brent crude prices have risen in recent days due to reports of a potential U.S.-Israeli attack on Iran, but they remain below their peak levels during the height of the conflict. JPMorgan analysts suggest that energy markets are converging on a "forever conflict" in the Middle East, but the resilience of supply has been key. A survey of investors predicts that Middle East disruptions will keep energy prices "structurally elevated" over the next year.

However, even if supplies remain constrained for another year, demand destruction in China could keep oil prices at around $90 per barrel, preventing them from soaring to the $120-$140 range. Saudi Arabia plans to convert a natural gas pipeline to carry 1.2 million barrels per day of oil, enhancing its ability to transport oil to its west coast.

Meanwhile, the United Arab Emirates is set to complete a second pipeline to its Fujairah port, allowing more oil to bypass the Strait of Hormuz. While Iran has warned that further U.S.-Israeli attacks could target energy infrastructure and critical assets, including data centers and internet cables, the U.S. has demonstrated restraint, choosing economic warfare over direct military strikes.

Despite President Trump's earlier threats, the U.S. has refrained from carrying out such actions, instead focusing on tightening economic pressure on Iran.