Oil Prices Rise as Fighting Resumes in the Middle East

Oil prices rose on July 29 after U.S. forces intercepted Iranian missiles aimed at bases in Jordan and the United States and Saudi Arabia responded by striking Iran-backed targets in Iraq. Brent crude oil futures, the international benchmark, gained 7.4% to $90.35 a barrel while U.S. West Texas Intermediate futures rose 7.4% to $85.11. Iran and its Houthi allies in Yemen are trying to control maritime traffic through the Strait of Hormuz and the southern Red Sea, the two crucial chokepoints for oil exports in the Middle East. The Iranians have repeatedly attacked oil tankers transiting Hormuz while the Houthis declared a maritime embargo against Saudi Arabia and attacked two Saudi oil tankers in the Red Sea.

Iran rejected Oman’s proposal for shared regional management of the Strait of Hormuz and insisted that the two countries retain authority over their respective waters without involving other governments. According to Iran, the Strait’s entire inbound route and part of the outbound route would have to be ​under Iranian control. The plan, endorsed by Gulf states, called for voluntary shipping fees to fund navigation, environmental protection and other maritime services. The plan is based ​on similar arrangements for the Strait of Malacca linking the Indian Ocean to ​the Pacific, ⁠where Indonesia, Malaysia and Singapore together ask for voluntary contributions from shippers to pay for services.

Only a few commodity ships have transited through the Strait of Hormuz so far during the week of July 27. Five ships ​transited through the Bab el-Mandeb Strait, an alternative route for Saudi oil shipments to Asia on July 29 and 39 on July 28–the highest number ‌since July ⁠19, just before Yemen’s Iran-backed Houthi militants announced a maritime blockade of Saudi Arabia.

Yemen’s Houthi group is also considering imposing fees on commercial ships sailing through the southern Red Sea to normalize the practice of ​imposing fees on international waterways and increase pressure on the United States. Chinese ships would be exempted from such fees. China held direct talks with the group to enable its tankers to sail through the region without being attacked. At least four tankers have loaded crude oil from Saudi ports bound for China and have ​transited Bab el-Mandeb since the Houthis announced their restrictions. Sailing through the Bab el-Mandeb to Asia takes, on average, 16 days, versus 50 days if cargoes are rerouted through the northern Red Sea, the Suez Canal, and around southern Africa. China is the world’s biggest buyer of Saudi Arabian oil.

OPEC+ is likely to halt oil output increases for ​three months starting in October, after the producer group completes the scheduled return of barrels following voluntary cuts. The cartel is planning to ratify an agreement to increase its September quota by 188,000 barrels a day — the same amount as in June, July and August — when it meets virtually on August 2 with seven members—Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman. This year’s quota increases have been largely paper exercises as the U.S. war with Iran forced Middle East producers to reduce oil exports. No further quota increases are expected for the rest of the year, with current production levels maintained until the new quotas come into effect in January 2027.

China’s Oil Imports

In 2025, China’s oil imports averaged 11.6 million barrels of oil a day. By June of this year, oil imports had dropped to around seven million barrels a day—a reduction of 40%. Despite the reduction, China’s economy still grew 4.3% in the second quarter. Estimates are that China can comfortably suppress its crude oil imports for another six months, based on the current rate of drawdown of its huge reserves. Even after that length of time, China would still have close to 1.1 billion barrels of oil remaining in storage—a mixture of refinery and commercial stocks and the country’s strategic petroleum reserve. China’s inventories were at 1.07 billion barrels early last year when the Chinese government announced a major stockpiling drive.

To reduce oil demand, China restricted refinery runs of its private refineries and banned petroleum exports at the start of the Iran war. With few oil resources of its own, it has subsidized and amassed a huge inventory of electric vehicles, which are also being exported. In 2025, more than half of all new cars sold in China were electric. More Chinese are driving electric vehicles instead of gasoline cars and are taking high-speed electric trains instead of domestic flights, reducing oil demand.

Conclusion

Fighting has resumed in the Middle East with Iran targeting U.S. bases in Jordan and the United States and Saudi Arabia hitting Iran-backed targets in Iraq, raising Brent oil prices above $90 a barrel. The Houthis are continuing their oil embargo in the Red Sea, but allowing Chinese tankers to exit the Bab el-Mandeb Strait.  Iran rejected Oman’s proposal for shared regional management of the Strait of Hormuz—a plan to allow voluntary shipping fees to fund navigation, environmental protection and other maritime services. Yemen’s Houthi group is also considering imposing fees on commercial ships sailing through the southern Red Sea. OPEC+ is proposing another quota increase for September, but none for the rest of the year. China has reduced its oil imports by 40% this year, helping to avoid large oil price spikes.

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