The IMF said on Wednesday that lower demand, higher production and inventory drawdowns prevented a larger spike in oil prices, but warned that a quick recovery in supply is essential to avoid further damage to the global economy.
Crude prices, which surged immediately after the attacks began, later settled in the $90 to $100 per barrel range, much lower than initially feared, the IMF said.
The war and the closure of the Strait of Hormuz cut off a daily supply of 20 million barrels of crude oil. Oil-producing US allies in West Asia moved quickly to reroute supplies, with Saudi Arabia using its pipeline to the Red Sea port of Yanbu and the UAE pushing Fujairah port close to capacity. “Even so, these workarounds offset only a fraction of lost Hormuz volumes,” the IMF said.
According to the IMF, by the end of May, 1.1 billion barrels of crude oil — equivalent to 10 days of typical global consumption — had not reached the market. “At the same stage of the disruption, the shortfall exceeded those of the 1973 oil shock, the Iran-Iraq war, and the Gulf War,” the IMF said.
Demand compression, diversification and inventory drawdowns came to the rescue, offering a lesson for policymakers.
The IMF said demand compression did the heavy lifting, especially in Asia, as higher prices reduced consumption and economies turned to alternatives such as coal and renewables. Transportation demand proved stickier, though, partly because fuel price caps, subsidies and tax rebates contained the impact, albeit at a fiscal cost.
Production outside the Gulf rose more than expected, by nearly 2 million barrels a day above 2025 levels, led by the US, Venezuela, Guyana and Russia.
Inventories did the rest. The estimated market deficit of about 4.0 million barrels a day from March to May was met almost entirely by drawing down global stocks, including commercial inventories in China and strategic reserves.
The concern, however, is that the world no longer has the same room to absorb another oil supply shock, with buffers now significantly lower.
“Energy shocks still bite. What cushioned the initial blow this time is that energy markets had room to maneuver and absorb it. As tensions flare again in the Strait of Hormuz, that room is now smaller and shrinking further as spare capacity has been deployed, demand has compressed, and inventories have been drawn down. Unless inventories are replenished, the world will start from a weaker position when the next shock comes,” the IMF said.
The IMF also warned that even if the Strait of Hormuz reopens immediately, recovery will still take time.
“Industry estimates suggest it will take two to three months before a significant share of oil flows can resume following a full reopening of the waterway. A longer-term concern is that prolonged production halts could cause permanent output losses, especially where financing to restart wells is scarce,” it said.
The IMF warned that even after supplies resume, the oil deficit will close only gradually. “Whenever supply begins to recover, the oil deficit will close only gradually, drawing inventories closer to operational minimums, the level below which the physical system itself begins to bind,” it said.
