Every oil shock eventually returns to the same narrow stretch of water: the Strait of Hormuz (SoH), the channel between Oman and Iran that carries about a fifth of the world’s oil. For more than half a century, it has been the pressure point of the global energy system. When geopolitical tensions constrict it, motorists feel the impact at the bowser.
But this isn’t the 1970s or the 1990s. The serious question is why the world has not learned from past crises and reduced its dependence on this contested strip of water. Surely 2026 is the last time the world falls for this old trick?
Brent Crude Oil Futures (Front month, back-adjusted) ICE. Source: TradingView
That’s what I wish to interrogate today. Has the world begun to build its way around this most notorious chokepoint for good? Indeed, the global economy just ran a massively important experiment: it absorbed four months of oil above US$100 a barrel, watched its most important shipping lane fall to a fraction of normal capacity – and barely broke stride.
In this piece I'll trace what the recovery actually looks like on the water and whether the world can wean itself off its dependence on the SoH. I’ll also check up on the latest expert views on what happens next to oil and the global economy and bring it back to our two major ASX energy names – Santos and Woodside.
What the recovery looks like on the water
Ceasefire! That’s it, crisis over. There’s nothing to see here…
Once you’ve stopped laughing, consider that oil flows through the SoH are far from back to normal. Maritime data and commodities analytics firm Signal Ocean has been tracking Gulf crude movements vessel by vessel throughout the disruption – and the picture its data paints is of a chokepoint that has reopened in name more than in practice.
Flows bottomed at just 3.3 million barrels on 21 May, against a three-year norm closer to 18 million. Even by late June, after a month of tentative recovery, crude moving out through the Strait was running near 7 million barrels – still more than 60% below where it would sit in a normal year. At the same time, tanker freight rates on the benchmark Middle East Gulf-to-China route spiked to five-year highs. The channel that normally carries about a fifth of the world's oil was, for a stretch, barely functioning – and the recovery since has been only partial.
Arabian Gulf dirty oil flows 2026 vs 2023-2025. 2026 flows are still down around 40% compared with 2023-25 and down 60% as of 24 June. Source: Signal Ocean
I asked Maria Bertzeletou, Signal Ocean Senior Market Analyst, where things actually stand. Conditions are far from settled, she told me, and the path back will be gradual. Substantial uncertainty still faces commercial shipping operators, including elevated costs from war-risk premiums, inconsistent navigational guidance from Iran, and simmering doubts over the durability of the ceasefire.
Barrels aren’t the issue, Bertzeletou notes, as Saudi Arabia and the UAE ramp production back up. The harder question is whether enough ships will be willing to carry them. By her read, the recovery in tanker traffic is likely to lag the recovery in exports – the real bottleneck on a return to normal.
And the back-up plan? Already maxed out. Saudi Arabia and the UAE rerouted crude onto their Red Sea and Gulf-of-Oman pipelines, lifting loadings at the Red Sea port of Yanbu to a peak of 4.06 million barrels a day – at or near the outlet's operational ceiling. Here is the part that should give the ‘crisis over’ crowd pause. The only large-scale alternatives to the Strait, Bertzeletou notes, are Saudi Arabia's East-West pipeline and the UAE's Habshan–Fujairah line – and together they can absorb only "around one-fifth to one-quarter" of the roughly 20 million barrels a day that normally transit the Strait, with the immediately redirectable volume lower still because both systems already carry regular flows.
The ceiling can improve over time, she offered, “but only gradually and only at the margin”. The UAE is expanding its Fujairah capacity, targeted around 2027, but the deeper constraint doesn't move: Kuwait, Iraq and Bahrain still lean heavily on maritime exports through the Strait, and Qatari LNG has no pipeline alternative at all.
Bertzeletou concludes that while these and future investments in a SoH alternative are likely to strengthen the resilience of Middle East oil supply, they do not remove its strategic importance. This year’s testing of a back-up plan shows it hit its limit very quickly and only blunted the shock. The fact remains: the global oil chokepoint is as strategically vital as it has ever been.
The oil shock the global economy shrugged off
A four-month oil shock with crude above US$100 a barrel should have left a mark on global growth. Here's the genuinely surprising part: it barely did.
Citi Research estimates global growth is tracking around 2.5% this year – down from the 2.9% it had pencilled in before the conflict, but still firmly in moderate-growth territory. For a shock of this size, that's a slowdown, not a recession, and Citi expects growth to firm back to 2.8% in 2027 as the oil pass-through fades.
The resilience came with strings attached, though, and they matter. Citi puts much of it down to a surge in artificial-intelligence investment – US AI capital spending ran at more than US$400 billion annualised in the first quarter, up from around US$300 billion a year earlier – alongside fiscal support and still-loose monetary policy. But the bank warns these props are working against potential drags such as rising public debt and a growing global trend toward tighter monetary policy.
For energy investors, the most important number is the one that survives the ceasefire. Citi sees Brent averaging around US$75 a barrel in the second half – some US$15 above its pre-conflict forecast. Reasons for the mark-up include damage to production, limitations on pipelines and refining capacity, plus the rush to refill drained inventories. The key takeaway: Citi sees this crisis leaving a higher floor under the oil price.
A similar view that the oil price will not return to pre-conflict levels is shared by UBS, which agrees that a quick de-escalation would see Brent settle around US$75 a barrel in 2027. But UBS also shares a few scenarios for what could happen to the oil price if tensions between the US and Iran reignite. Another flare-up could see Brent averaging around US$135 in the second half, with a brief spike beyond US$150 at the peak of demand destruction.
Clearly, the volatility of the current environment makes forecasting difficult, and as UBS points out, the reopening won't be binary. Investors would be unwise to discount higher price scenarios entirely. Sporadic exchanges of fire over the past weekend are a reminder that the ceasefire is a framework, not a fact – and that the path back to US$75 oil still runs through a geography that remains very much under dispute.
Santos and Woodside post-crisis: buy, hold or sell?
Which brings us home, to the two names Australian investors must form a view on: Santos (STO) and Woodside Energy (WDS).
UBS's preference is clearly Santos. The broker rates the stock a Buy with an $8.60 price target, and its case rests on cheap optionality: on UBS's numbers, Santos has been trading at an implied oil price of around US$67 a barrel – well below where Brent has actually sat through the crisis. In UBS's view, even its downside scenario, with Brent fading to US$75 in 2027, leaves the stock undervalued at current levels. The broker also points to the strongest near-term production growth in its coverage, with the Pikka and Barossa projects ramping up, and a valuation at a discount to North American peers.
Santos broker consensus. Source: Market Index Broker Consensus data. To obtain a stock’s Broker Consensus Rating, we assign a value of +1 to any rating better than HOLD/NEUTRAL/MARKETWEIGHT, a value of 0 for any rating equivalent to HOLD/NEUTRAL/MARKETWEIGHT, and a value of -1 to any rating worse than HOLD/NEUTRAL/MARKETWEIGHT. We then take the average of all assigned rating values and assign a Broker Consensus Rating of BUY to values greater than +0.5, a rating of HOLD for values between -0.5 and +0.5, and a rating of SELL for values less than -0.5. The Broker Consensus Target is simply the average of the target prices we have on file for each broker. Typically, brokers define their target prices as a 12-month forecast. Each target price is based on fundamental valuation assumptions.
Santos’ broker consensus data shows that it’s also highly regarded by the rest of the broking research community. With a Broker Consensus Rating of 0.82 it is a strong consensus buy. Its Broker Consensus Price Target of $8.67 implies 21.2% upside from the 29 June closing price of $7.15.
Woodside draws a cooler verdict from UBS, which holds a Neutral rating and a $30.40 12-month price target, viewing it as the steadier, lower-leverage way to play higher oil. The broker has a clear preference for Santos, and this view is similarly reflected in Woodside’s broader broker consensus.
Woodside Energy broker consensus. Source: Market Index Broker Consensus data
With a Broker Consensus Rating of 0.2, dragged down by two sell-equivalent ratings, Woodside could be described as a solid hold. Despite a lukewarm rating profile, brokers arguably still see some value in the stock, with its Broker Consensus Price Target of $33.24 implying 18.8% upside from the 29 June closing price of $27.97.
Conclusion: after the last crisis, before the next
The terms ‘oil price shock’ and ‘energy crisis’ will be frequent in any review of this year’s major market drivers. And while the temperature of the Middle East conflict appears to be cooling, it has only confirmed the strategic importance of a narrow waterway in one of the most geopolitically volatile regions of the planet.
Certainly, the events of the last few months have delivered a robust stress test of the global energy supply chain, but they are unlikely to prove a turning point in diminishing the SoH’s importance in this fragile system. The back-up plans proved their worth but hit their ceiling quickly. Investments in alternative pathways are inevitable, but they are likely to only strengthen resilience rather than eliminate the Strait's strategic importance.
Close to home, the experts see value in our two largest energy producers despite the apparent end of the crisis. Investors must now decide how much exposure they want to the energy security thematic – more or less?
This article draws on institutional research from Signal Ocean, Citi Research and UBS (June 2026), and on direct correspondence with Signal Ocean analyst Maria Bertzeletou.