Oil Prices Back to Pre-War Levels, But Market Far From Normal

Global crude oil prices have made a notable return to levels seen before the military escalation between the United States and Iran, marking a significant development in the markets. Following a conflict that lasted approximately four months and caused severe disruptions in the Strait of Hormuz, Brent crude has fallen to the $72-$73 per barrel range, aligning with its pre-war price of around $72.48 at the end of February 2026. However, despite this price retreat, the crude oil market is far from fully normalized in terms of shipping, supply, and global demand dynamics.

The tensions escalated in late February 2026 with US and Israeli missile strikes on Tehran, followed by Iranian retaliatory actions and threats to close the Strait of Hormuz, creating significant instability in the region. Disruptions in this critical waterway, through which approximately one-fifth of the world's oil supply passes, pushed Brent crude prices above $100 per barrel, and even as high as $140 by some accounts, in April. The signing of a Memorandum of Understanding (MoU) between the US and Iran on June 17, 2026, which initiated a 60-day negotiation period, de-escalated tensions and facilitated the reopening of the Strait of Hormuz for tanker traffic.

This pullback in oil prices is largely attributed to the gradual normalization of shipping activities through the Strait of Hormuz and the unwinding of the geopolitical risk premium. Nevertheless, the markets are not in a state of full normalization despite prices returning to pre-war levels, as shipping traffic remains below pre-conflict volumes, geopolitical uncertainties persist, and structural changes in global demand dynamics are evident. Factors such as weaker consumption in China and the accelerating adoption of electric vehicles (EVs) point to a slowdown in global oil demand.

The broader economic context of this development underscores the impact of Middle Eastern instability on global energy supply security. The risk of closure of critical chokepoints like the Strait of Hormuz affects not only oil prices but also global supply chains and inflation expectations. As central banks like the Federal Reserve (Fed) continue their fight against inflation, volatility in energy prices remains a significant macroeconomic risk.

Market analysts anticipate that oil prices could stabilize within a $60 to $80 range in the coming period. However, warnings are issued that prices could quickly surge again if tensions in the Middle East reignite or if negotiations fail. Furthermore, the tendency of countries to replenish strategic petroleum reserves and structural demand shifts (especially due to electric vehicles and fuel efficiency) will play a decisive role in shaping new supply-demand balances in the market.