Strait of Hormuz Oil Flows Drop as War Reignites

Crude oil prices are climbing again as fighting around the Strait of Hormuz undercuts the fragile calm that briefly returned shipping lanes to something close to normal. The United States Oil Fund (AMEX:USO) fell 1.71% to 119.30 on July 17, 2026, even as underlying crude benchmarks have jumped more than 8% over the past five days, a divergence that underscores how quickly sentiment around Gulf supply risk can shift.

How Much Oil Moves Through the Strait of Hormuz

Roughly 20 million barrels per day of oil products once passed through this single chokepoint before the war, about a fifth of global oil trade, with crude accounting for three quarters of that volume. That scale is why any disruption there reverberates through pricing models far beyond the Gulf. After collapsing toward zero in the war's opening days, flows had clawed back to around 10 million barrels per day by early July as a US Iran memorandum of understanding held, according to Goldman Sachs data. Rystad Energy's Lu Ming Pang noted that markets had priced in a fuller normalization following the June 17 agreement, an expectation that has since unraveled.

The Reversal Since Mid July

By July 15, Hormuz throughput had fallen back to somewhere between 3 million and 5 million barrels per day, per Goldman strategists led by Daan Struyven, who peg the current shortfall at 13.4 million barrels per day relative to Gulf capacity. That reversal tracks almost exactly with the breakdown of the ceasefire and five consecutive days of US military action, including a Wednesday round of strikes that US Central Command described as targeting Iran's capacity to threaten commercial shipping through the strait. Iran has answered with retaliatory strikes on US installations across the region. A second US naval blockade, in effect since 4 p.m. ET Tuesday, has already turned back two commercial vessels attempting the transit, Central Command said.

Brent futures (BZ=F) have pushed back above 84 dollars a barrel and WTI (CL=F) above 79, both up more than 8% on the week. That move sits against a backdrop where broader risk assets, tracked loosely through SPY, QQQ and DIA, have shown far less volatility, suggesting the oil market is pricing a geopolitical premium that equities have not yet fully absorbed. Gold (GLD) and silver (SLV) exposure also bears watching here: prolonged Gulf tension typically feeds safe haven demand, though neither metal has moved with the urgency seen in crude.

Inventory Cushions and China's Buying Pattern

China, the largest crude importer globally, cut its intake by roughly 5 million barrels per day during the first phase of the conflict, effectively banking spare capacity that helped absorb the initial supply shock. Goldman's team warns that cushion may not hold. Gulf producers discounting prices to retain market share, combined with Beijing's own recalculation of strategic stockpile targets, could prompt a resumption of Chinese buying that would tighten the market further just as Hormuz flows are already constrained.

Why a Recovery May Take Longer This Time

Goldman's strategists argue that the path back to normalized flows is steeper than after the initial shock, given how much inventory has already been drawn down globally. They say a rebound would likely require either demand destruction or a fresh round of inventory drawdowns to bridge the gap, neither of which happens quickly. Shipping companies remain wary of routing tankers through Omani waters despite White House assurances that the lane remains open, a hesitation that itself constrains flows independent of any formal blockade. Pang's assessment is blunt: as confidence in the strait's security keeps eroding, markets need to start pricing a more durable disruption rather than a temporary spike.

What the Strait of Hormuz Oil Risk Means for Prices Ahead

The dollar's trajectory matters here too. A stronger dollar typically caps crude's upside by making oil more expensive for buyers using other currencies, while a weaker dollar tends to amplify price gains during supply scares. With USO's RSI at 53.35, sitting comfortably within neutral territory and well off the 52 week high of 154.08 (the fund has traded between 102.42 and 154.08 over the past year), the market has room to move in either direction depending on how the naval standoff and Chinese buying patterns evolve over the coming weeks.

Frequently Asked Questions

Does the Strait of Hormuz have oil?

The strait itself does not contain oil deposits; it is a narrow shipping channel between Iran and Oman that serves as the primary maritime route for crude and other oil products moving out of the Persian Gulf toward global markets.

Does the Strait of Hormuz produce oil?

No oil is produced within the strait. Production happens in Gulf states such as Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Iran, all of which rely on the strait to export crude, making it a transit chokepoint rather than a production zone.