Executive Summary 

•  Oil prices have moved higher after renewed U.S.-Iran hostilities, but so far markets seem to have responded less sharply.

• U.S. oil production remains resilient, while softer demand has helped absorb part of the supply disruption.

• Alternative export routes have helped keep energy supplies flowing despite disruptions.

• Shipping activity through the Bab el-Mandeb and strategic oil reserve drawdowns will be key developments to watch.

• The economic and inflation impacts of the Middle East conflict are rising alongside conflict escalation but remain modest overall. 

So far, markets have responded less sharply to the Middle East conflict than they did earlier this year

Shown on the left is the S&P 500, which is a market capitalization weighted index of U.S. large cap stocks. Shown on the right is a summary table of factors influencing the first and second waves of geopolitical risk associated with the U.S.-Iran war. Past performance may not be indicative of future results. One cannot invest directly in an index.

•  Renewed hostilities between the U.S. and Iran have revived concerns about a second energy-related shock, though markets have thus far had a more muted response than they did earlier this year.

• Unlike the initial disruption, where the Strait of Hormuz was the primary risk, a broader regional escalation now threatens both the Strait of Hormuz and the Bab el-Mandeb, increasing the number of critical shipping routes exposed to disruption.

• However, mitigation efforts have also evolved, shifting from reactive responses such as emergency strategic reserve releases to proactive measures, including pre-positioned strategic reserves and expanded use of alternative export routes such as Saudi Arabia's East-West Pipeline. 

U.S. oil production remains resilient, while softer demand has helped absorb part of the supply disruption

Shown on the left in orange is U.S. crude oil production, and U.S. net imports of crude oil and petroleum in green, both in millions of barrels per day. Shown on the right are estimates for global crude oil supply and demand, measured in millions of barrels per day. Actual results may differ materially from estimates.

•  Strong domestic production has helped insulate the U.S. economy from Middle East energy disruptions, with the U.S. now exporting significantly more energy than it imports, reducing its reliance on foreign energy supplies and partially offsetting shortfalls elsewhere.

• Falling oil demand has been an underappreciated offset to recent supply disruptions, helping rebalance the market ahead of the second shock and limiting the need for an even larger drawdown of inventories. 

Alternative export routes have helped keep energy supplies flowing despite disruptions 

Shown on the left is a map of the Middle East and parts of Africa highlighting key oil transportation infrastructure. Blue dots represent major maritime shipping chokepoints, green dots represent alternative export locations, and the red line represents Saudi Arabia's East-West Pipeline. Shown on the right are Saudi Arabian crude oil export volumes by point of export, with Persian Gulf terminal exports in blue and Port of Yanbu exports in orange.

•  The closure of the Strait of Hormuz has forced Gulf producers to reroute crude exports, with Saudi Arabia increasingly using its Petroline to move oil from Gulf production fields to the Red Sea port of Yanbu.

• Rather than exiting through Hormuz, crude loaded at Yanbu can access global markets via the Red Sea and Bab el-Mandeb Strait, partially offsetting the decline in exports from Gulf terminals.  

Shipping activity through critical chokepoints and strategic oil inventories will be key signals to watch

Shown on the left are seven-day averages of daily bidirectional commercial cargo vessel flows across the Strait of Hormuz, the Suez Canal, and the Bab el-Mandeb Strait. Shown on the right are weekly U.S. crude oil stocks in the Strategic Petroleum Reserve in millions of barrels.

•  As Gulf producers increasingly rely on the Red Sea export corridor, shipping activity through Bab el-Mandeb may provide an early signal of whether supply disruptions are broadening beyond the Strait of Hormuz.

• With emergency oil inventories well below historical levels and closer to statutory minimums, reserve drawdowns may provide less support to energy markets if supply disruptions become more severe or prolonged. 

Oil prices have moved higher following renewed hostilities between the U.S. and Iran 

Shown on the left are the spot prices of Brent crude oil over time, measured in U.S. dollars per barrel. The dashed line represents the average market-implied Brent crude oil price based on futures contracts. Futures contracts reflect current market expectations for future oil prices and are not guaranteed forecasts of future spot prices. Shown on the right are Glenmede’s estimates of the impact of two one-time crude oil price shock scenarios on 2026 U.S. year-over-year gross domestic product (GDP) growth and Consumer Price Index (CPI) inflation. The impact of the first shock is shown in blue and the impact of the second shock is shown in hashed green. Green dots are estimates assuming the effective closure of the Bab el-Mandeb strait. Actual results may differ materially from projections.

• Oil prices have started climbing back toward levels reached during the initial U.S.-Iran escalation, raising the risk of a renewed energy-driven shock.

• If sustained, current price levels could produce economic effects similar to those seen during the first shock, weighing modestly on growth while adding to inflation pressures.

• A broader and sustained disruption affecting both the Strait of Hormuz and Bab el-Mandeb could place additional upward pressure on oil prices, resulting in somewhat larger economic and inflation effects than those experienced during the first shock.