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US / Israel–Iran War · Market Update
- On 11th Oct’26, Iran described Washington’s response to its seven condition proposal for reopening the Strait of Hormuz as insufficient, stating that outstanding issues required clarification. Tehran proposed restoring normal maritime passage through the strategic waterway within seven days if its conditions were met, leaving uncertainty over the recovery of regional crude oil shipments.
- The United Kingdom Maritime Trade Operations agency reported that three vessels a product tanker, a crude oil tanker and a container ship were struck by unidentified projectiles while transiting the Strait of Hormuz on 11th Oct’26.
- Saudi Arabia is considering converting a domestic gas pipeline to transport crude oil, potentially adding 1.2 MBpd of export capacity within seven to eight weeks. Additionally, upgrades to the East–West Pipeline, pumping stations and related infrastructure could increase alternative pipeline export capacity by up to 3 MBpd over the next two to three years, reducing reliance on vulnerable maritime routes and improving crude export flexibility.
- Shipping through the Strait of Hormuz slowed sharply over the weekend, with only five commodity vessels crossing on 10th Oct’26 and no transits recorded on 11th Oct’26, compared with 31 vessels during the previous weekend. The decline followed attacks on three vessels operated by Abu Dhabi National Oil Company (ADNOC) and stalled US–Iran negotiations, heightening uncertainty over the resumption of normal crude oil shipments.
- Yemen’s Iran backed Houthis claimed responsibility for a missile attack on Riyadh’s King Khalid International Airport on 10th Oct 2026, killing 13 people and injuring more than 300, while a further projectile strike on the airport on 11th Oct’26 killed one person and injured 11 others. The attacks have heightened regional security concerns and increased the risk of further escalation that could threaten Saudi energy infrastructure and Middle Eastern oil export routes.
- US President Donald Trump stated that Washington would not launch an attack on Iran before the 3rd Nov’26 midterm elections, citing ongoing productive discussions with Tehran aimed at resolving the conflict.
- US President Donald Trump proposed an energy ceasefire between Russia and Ukraine on 11th Oct’26 , urging both sides to halt attacks on energy infrastructure, including oil refineries. Ukraine expressed willingness to suspend refinery strikes if Russia stopped attacks on Ukrainian energy facilities, although Moscow had not officially confirmed the agreement.
- Hurricane Isaias forced US producers to shut in approximately 1.5 MBpd of crude oil production which is equivalent to 72% of Gulf of Mexico output, as the storm approached Florida. By 10th Oct’26, around 69% of regional crude production remained offline, prompting the US Department of Energy to authorize an emergency exchange of up to 4 mln bbl from the Strategic Petroleum Reserve (SPR) to help mitigate supply disruptions.
- US announced an agreement for Russia to deliver more than 0.3 mln tons of diesel initially, followed by a further 0.5 mln tons in Nov’26 and an additional 1 mln tons thereafter. To facilitate these shipments, Washington temporarily authorised Russian diesel imports under a US Treasury license valid until 7th Apr’27.
- Rising tanker freight rates and limited US refining capacity have created a surplus of heavy crude across the United States, Canada, Colombia, Ecuador and Venezuela. Shipping a supertanker from the US Gulf Coast to Asia has become as expensive as 80 million USD, equivalent to approximately 40 USD /bbl. These transportation and refining constraints are forcing producers to accumulate crude inventories even as buyers in Asia and Europe face supply shortages.
- Germany announced plans to release up to 15 mln bbl of crude oil, diesel and heating oil from its emergency reserves under the G7 backed programme to address supply shortages linked to the Iran and Ukraine conflicts, with diesel and heating oil to be released first, followed by crude oil, to improve fuel availability and ease supply constraints.
- China resumed refined fuel exports on 9th Oct’26 following a temporary suspension during the Golden Week holiday, with authorities approving approximately 3.7 mln tons of combined gasoline, diesel and jet fuel exports for Oct’26, compared with more than 4 mln tons in Sep’26 which is expected to provide some relief to Asian fuel markets.
War Impact on Crude Oil & Gasoil/Diesel Prices
War Impact on Gasoline, ATF & Natural Gas Prices
GCC Bypass Pipelines Running Near Capacity — But Shah Gas Field Ablaze and Fujairah Zone Struck
- Saudi Arabia's East-West pipeline is pumping oil at its full capacity of 7 MBpd, bypassing the Strait of Hormuz. Crude oil exports from Yanbu port have reached 5 MBpd, and the country is also exporting 0.70 to 0.90 MBpd of oil products.
- Of approximately 15 MBpd of crude transiting the Strait of Hormuz in OND'25, combined SPR releases and bypass pipeline capacity can offset roughly two-thirds — or slightly more — for the next 20 to 30 days, providing the Trump administration a window to assess strategic direction.
- New strikes directly threaten this buffer — Iranian drones struck the UAE's Shah gas field (currently ablaze) and the Fujairah Oil Industry Zone on Mar 17. A tanker was also hit near the Strait of Hormuz. Saudi Arabia intercepted over a dozen drones; Kuwait and Bahrain sustained additional attacks. These represent the first direct strikes on GCC energy export infrastructure since the conflict began.
War Scenarios Point to Global Supply Deficit of 0.92–1.07 MBpd in 2026 and AMJ Quarter Most Severe with a deficit of 4.10 MBpd.
Pre-war, global supply and demand were near-balanced with a modest surplus of +0.55 MBpd projected for 2026. Both conflict scenarios introduce significant supply deficits driven by Strait of Hormuz disruptions and impacts on Iraq and Kuwait crude production.
- Scenario 1 (Preferred): Ceasefire talks continue to progress positively, with tanker flows through the Strait of Hormuz gradually normalizing over the next 4–5 weeks. Supply recovers steadily, while demand improves at a slower pace and remains below pre-war expectations, resulting in a moderate market surplus.
- Scenario 2 (Alternate): The Strait of Hormuz normalizes over the next 4–5 weeks, supporting a gradual recovery in oil exports and supply. Demand rebounds more strongly than in Scenario 1, reducing the market surplus, although overall consumption remains below pre-war levels.
Geopolitical backdrop:
War Front: Yemen Escalation Raises Red Sea and Gulf Shipping Risks - Yemen fighting has intensified as Saudi-backed forces advance near the Bab el-Mandeb Strait, while Houthi attacks on Saudi infrastructure and continued tanker incidents around the Strait of Hormuz keep Gulf shipping risks elevated. At the same time, the U.S. is expanding its military presence in the Gulf, including an additional carrier and around 10,000 sailors and Marines, while diplomacy with Iran remains stalled.
US central bank viewed inflation as the biggest risk to their outlook, with most participants assessed that another increase in the fed funds target range would likely be appropriate by year end. This led to a higher Treasury yields ,strengthening the dollar’s interest rate differentials. However, September nonfarm payrolls increased by only 29K, well below expectations, adding to expectations that the Fed may have less scope for October Fed rate hike, along with dovish comments from New York Fed President John Williams, further limited the dollar’s upside.
Steel:
- Steel supply chains remain largely insulated from the Middle East conflict.
- Moreover, HRC prices are up by 2.1% on a monthly basis due to raw material price surge and stronger demand from auto sector.
Base metals:
- LME 3M copper are up by just 0.2% on a weekly basis as support from weaker job data, reduced rate hike expectations, several supply disruptions in Chile (Escondida, Radomiro Tomic, and Centinela), backwardation structure, and drawdown in SHFE inventory was capped by progress in Grasberg repairs and geopolitical tensions.
- Aluminum prices are down 3.2% due to gradual recovery from GCC and stronger dollar despite tensions in the middle east.
Precious metals:
- Stronger U.S. yields and weak industrial offtake are suppressing any upside momentum.
- Stronger US Dollar and geopolitical tensions are weighing on precious metal prices.
LPG Market Update
- For October, Saudi Aramco CP was set at USD 680/ton for propane and USD 730/ton for butane, representing increases of USD 55/ton and USD 70/ton, respectively, from September levels. The propane-butane spread widened further to USD 50/ton, compared with USD 35/ton in September and USD 20/ton in August, indicating continued relative strength in butane pricing and tighter butane availability compared with propane. The larger month-on-month increase in butane also points to a stronger rise in butane market tightness entering October.
- Sonatrach increased its October propane OSP by USD 110/ton, from USD 560/ton in September to USD 670/ton. Meanwhile, the butane OSP increased by USD 140/ton, from USD 610/ton to USD 750/ton.
- US LPG prices strengthened across the board between 1 October and 8 October 2026, with propane rising by 8.6% to USD 466/ton from USD 429/ton. Butane increased by 7.6% to USD 738/ton from USD 686/ton, while the 50:50 LPG blend climbed by 8.0% to USD 601.77/ton from USD 557.28/ton. Notably, the Mont Belvieu 50:50 LPG blend crossed the USD 600/ton threshold for the first time since 2022, underscoring the strength of the current price rally. The simultaneous increase in propane and butane indicates broad-based upward pressure across the US LPG market rather than a rally driven by a single component.