Oil and European gas markets ended July dominated by diplomatic developments, military risks and shipping disruptions rather than traditional supply-and-demand factors. Every indication that the Strait of Hormuz could reopen reduced part of the geopolitical risk premium, while every new escalation quickly restored market concerns over potential supply disruptions.
Brent crude prices climbed above $100 per barrel during the height of tensions before falling more than 9% to around $88 when the United States and Iran appeared to temporarily reduce military activity. The decline was not caused by a sudden increase in supply or a major drop in demand. Instead, it reflected expectations that Gulf shipping routes could return to normal faster than previously feared.
However, that optimism proved short-lived. Oil prices moved back above $92 per barrel following renewed strikes, missile activity and further incidents involving vessels near the Strait of Hormuz and the Red Sea. At the same time, US commercial crude inventories declined by 7.2 million barrels, while an additional 3.8 million barrels were released from the Strategic Petroleum Reserve. By the end of the week, Brent was trading at $89.58 per barrel, while WTI stood at $83.98.
The latest price movements highlight a market caught between geopolitical headlines and physical supply constraints. Financial markets can react instantly to diplomatic signals, but restoring normal energy flows requires time. Reopening shipping routes, clearing tanker backlogs, securing insurance coverage and restarting regular refinery deliveries cannot happen overnight. Traffic through the Strait of Hormuz remained heavily restricted, while oil and refined product flows through the Bab al-Mandab corridor declined from around 5.5 million barrels per day in June to 2.6 million barrels per day in July.
European gas markets showed even greater sensitivity to geopolitical developments. The TTF benchmark contract fell by as much as 11% when negotiations appeared to progress, but quickly recovered after fighting resumed and Qatar maintained force majeure conditions. Unlike crude oil, LNG supplies cannot easily be redirected without available liquefaction capacity, shipping availability and regasification infrastructure. Even if transport routes reopen, a full return to normal supply conditions depends on operational stability and exporters’ willingness to restart regular deliveries.
The European TTF front-month contract reached €59.785/MWh, equivalent to approximately $19.96/MMBtu, while the Asian JKM benchmark traded at $21.375/MMBtu. The price difference created an incentive for flexible LNG cargoes to move towards Asia whenever shipping conditions allowed. Meanwhile, the US Henry Hub price remained significantly lower at $2.77/MMBtu, highlighting the growing divide between a well-supplied domestic US gas market and a tighter global LNG market.
For crude oil markets, volatility is expected to remain elevated. A reliable transit agreement could remove part of the immediate geopolitical premium, but prices would continue to reflect limited inventories, tight refined product markets and ongoing security risks. A partial reopening scenario could create continued uncertainty, with selective shipments restarting while insurance and transportation costs remain high. A renewed closure of key routes would shift attention back towards refinery supply constraints, emergency stock releases and the possibility of weaker demand.
European gas markets face a more complex outlook. The region is entering the winter preparation period with lower storage levels and stronger competition for LNG supplies from Asia. A limited number of additional LNG shipments could improve market sentiment, but they would not be enough to significantly rebuild storage volumes. Gas prices are therefore likely to remain elevated until exports normalise or European demand falls significantly.
The key factor for energy markets is no longer the language of diplomatic negotiations. The decisive indicator is the actual volume of oil and LNG physically moving through critical shipping routes. Until those flows recover, geopolitical risk will continue to shape prices across global energy markets.
