The oil supply crisis has reached a critical juncture as more than 43% of the world's oil supply now comes from countries caught in wars, attacks and export curbs, highlighting unprecedented vulnerability in global energy markets. According to Reuters calculations based on International Energy Agency data, countries affected by conflicts involving Iran, Russia, Ukraine, Libya and Venezuela produced around 45 million barrels per day in 2025, accounting for more than 43% of global oil supply. The situation has intensified following U.S. and Israeli attacks on Iran six months ago, which triggered what has become the largest oil supply crisis on record. The disruption has yet to show a clear path toward resolution, with current disruptions in the Gulf reducing oil flows by an estimated 5 million to 7 million barrels per day, while attacks in the Red Sea and near Egypt's Suez Canal in July highlighted vulnerability of key shipping routes. The figure underlines how this year's disruptions have grown beyond a single flashpoint and eclipsed previous energy crises.
Current disruptions in the Gulf have reduced oil flows by an estimated 5 million to 7 million barrels per day, according to analysts cited by Reuters. Saudi Arabia has redirected some crude shipments toward the Red Sea, while some Gulf producers have sought to move oil through the Strait of Hormuz despite the risks. The threat to global energy flows remains elevated, with the UAE suspending financial and economic transactions with Iran after accusing Tehran of missile launches and attacks on two ADNOC tankers. Hormuz transits fell to a low of three vessels a day against roughly 130 pre-war, while Brent rose more than 5% on the week to the $93-94 area, a one-month high and a second consecutive weekly advance. The disruptions have made the world more dependent on US oil supplies, although severe weather has occasionally hit those supplies as well.
The crisis has taken a devastating toll on refining capacity, with conflicts in the Gulf and Ukraine cutting global refining capacity by about a tenth. Ukraine has targeted large parts of Russia's refining network, with attacks reaching plants as far away as Omsk, around 2,700 km from Ukrainian-held territory. Russia has responded to fuel shortages by restricting gasoline and diesel exports, further tightening supplies in international fuel markets. The combination of crude supply disruptions and reduced refining capacity has contributed to higher fuel prices, with US diesel prices climbing to record levels even as refiners operate at peak capacity. The International Energy Agency has responded by releasing record volumes of oil from emergency stockpiles to help offset the supply shock, though most releases have now been completed while global inventories continue to decline.
The commodity rally has developed a much broader foundation compared to earlier in the year, with the Bloomberg Commodity Total Return Index rising 3.3% this week and achieving a 30% year-to-date total return. The 12-month gain has reached around 44%, demonstrating sustained momentum across multiple sectors. All major commodity sectors except industrial metals traded higher, with platinum, silver, crude oil, diesel and EU gas leading the gains. This represents a significant shift from earlier rallies that were often dominated by one sector, most recently precious metals followed by energy, to the current advance supported by several independent drivers occurring simultaneously: constrained physical supply, geopolitical disruption, weather uncertainty and growing concern about the purchasing power of financial assets.
The US Treasury surprised markets by announcing it would at least double the size of liquidity-support buybacks for longer-dated government bonds, increasing purchases of 10- to 30-year securities to at least USD 4 billion per operation. This came after 30-year Treasury yields had climbed to 5.34%, their highest level since 2007. The dollar softened, with the DXY at its weakest level since May and the euro reaching a two-month high near 1.17, while gold extended its advance toward record territory around $4,600 per ounce, a three-month high. Higher fuel prices have emerged as a key driver of inflation, contributing to higher borrowing costs and helping push US debt to a record $40 trillion. The combination of a weaker dollar, stronger gold, and elevated long-end yields is consistent with markets charging a rising fiscal-and-inflation risk premium on U.S. assets – a supportive backdrop, at the margin, for EM local currency allocations.
