The Iran war has triggered the largest oil supply disruption in history yet future prices are not that high, which has left some investors wondering why. The answer has to do with the oil balance before the war, the response to the disruption, market expectations and whether the futures price is really the best place to look, Wall Street analysts say. The market has lost nearly 1 billion barrels of oil during the 10 weeks that Iran has managed to basically close the Strait of Hormuz, the CEOs of Saudi Aramco and Shell said on their first-quarter earnings calls. Morgan Stanley forecasts the market will lose another billion barrels over the course of 2026 due to the time required to restart oilfields, repair refineries and reposition the tanker fleet. "That this is the largest oil supply disruption in the history of the oil market is neither an exaggeration nor controversial," Martijn Rats, commodities strategist at Morgan Stanley, told clients in a Monday note. Saudi Aramco CEO Amin Nasser and International Energy Agency chief Fatih Birol have described the disruption in the same terms. @LCO.1 3M mountain Brent futures over the past three months Yet the international benchmark Brent futures traded near $108 per barrel Tuesday, while U.S. crude oil futures were just above $101 per barrel. These prices are not that high in historic terms with Brent trading above $100 from 2011 to 2014, Rats said. It hit $130 in March 2022 on the much smaller supply disruption triggered by Russia's invasion of Ukraine, he said. "The question oil specialists are scratching their heads over is reasonable: should Brent not be substantially higher?" Rats said. Morgan Stanley and JPMorgan have five reasons why oil prices have not spiked higher. 1. China slashed imports The single biggest reason why oil prices are not higher right now is because seaborne crude imports have plummeted by nearly 10.9 million barrels per day from April 8 to May 8, Rats said. China is by far the biggest player behind this adjustment, the analyst said. Its imports fell by 5.5 million bpd from about 14 million bpd one year ago to 8.5 million bpd right now. The import plunge is bigger than the net contraction in exports of 6.8 million bpd, Rats said. The market lost 12.3 million bpd of exports from the Persian Gulf from April 8 to May 8, he said. But other producers – particularly the U.S. – helped offset this by 5.5 million bpd, the analyst said. Beijing is not refusing to take cargoes. Rather, China's state-trading houses are taking the shipments but then reselling them on the spot market, Rats said. "The flow of cargoes initially sold to Chinese players is rising, not falling, but they are simply sold on to others, usually before they ever leave Africa," he said. 2. The market had a surplus The oil market also entered 2026 with a significant surplus of 2 million bpd, ample onshore and offshore inventories as well as strategic reserves that could be mobilized, Rats said. "These buffers are now being consumed, but they explain why the shock has been less explosive in flat price than in, say, 2022," the analyst said. 3. The market bet Hormuz would reopen soon The futures market is just that — a market that tries to forecast the future. The front-month Brent contract, for example, settles two months out. It is forecasting prices not today but weeks later. Market participants have been betting that the U.S. and Iran will reach an agreement to reopen Hormuz. President Donald Trump has fed this narrative with the ceasefire, peace talks with Iran and his brief attempt to escort vessels through Hormuz. This has "made it plausible to assume the Strait was about to reopen," Rats said. 4. U.S. exports surged Producers outside the Middle East have managed to surge seaborne net exports of oil and refined products by 5.5 million bpd during the period from April 8 to May 8, Rats said. The U.S. accounts for the largest share with an increase of 3.8 million bpd. This "is a level we would have struggled to forecast at the start of the conflict," Rats said. 5. Look at refined products, not oil futures JPMorgan has proposed another reason why oil prices are not higher right now. The disruption is being expressed more in refined products prices rather than crude oil prices. "This redistributes the price signal along the value chain, allowing crude benchmarks to remain lower than would otherwise be implied by the size of the supply shock," Natasha Kaneva, JPMorgan's head of global commodities strategy, told clients in a Monday note. Crude prices rose 40% from January through April while refined products prices in Asia, the region hardest hit, surged 60% to 120%, Kaneva said. In other words, products have repriced 1.5 times to three times faster than oil, the analyst said. Brent oil prices could remain mostly stable around the $100 per barrel range for the rest of the year, Kaneva said. The market could rebalance "through product demand destruction rather than through another major leg," she said
