Red Sea, Hormuz risks may push Brent to $120: Mohammed Imran, Mirae Asset

Global oil markets have moved into a materially higher-risk regime, as geopolitical disruptions across the Middle East, Russia, and key maritime corridors force traders, refiners, and policymakers to reassess the true cost of energy security. Brent crude’s move back toward the psychologically important $100 per barrel mark, alongside West Texas Intermediate near the low-$90s, reflects broader threats to seaborne flows, constrained refining capacity, low product inventories, and renewed military escalation around some of the world’s most important energy chokepoints. Oil has gained 32 per cent this month alone on the renewed escalation.

 

The immediate catalyst has been the escalation in the Red Sea and the Persian Gulf. Houthi attacks on tankers in the Red Sea have added a fresh risk premium to crude and refined product markets, while renewed US-Iran tensions have revived fears over the Strait of Hormuz. Together, these corridors sit at the centre of global hydrocarbon logistics. Even a partial disruption forces buyers to reroute cargoes, extend voyage times, raise freight costs, and hold larger working inventories.

 

Two Chokepoints, One Fragile Supply Chain

 

The market’s central concern is that the Red Sea and Hormuz risks are not isolated events. The Red Sea disruption affects Europe-Asia trade flows and raises the cost of moving crude and products through the Suez-linked route. Hormuz, by contrast, is the critical artery for Gulf crude, condensate, and refined products.

 

The UAE is the only regional player with access to export infrastructure outside the most exposed routes and is therefore likely to gain strategic importance. Abu Dhabi’s ability to offer cargoes from inside and outside the Strait of Hormuz gives buyers an additional layer of optionality. Asian refiners, particularly those with complex systems and diversified crude slates, are likely to pay a premium for supply reliability during periods of military uncertainty.

 

Russia and Kazakhstan Add a Second Layer of Supply Stress

 

The Middle East risk premium is being reinforced by supply stress in Russia and the Black Sea region. Ukrainian drone and missile strikes have reduced Russian refinery operations and disrupted fuel availability across several regions, pushing crude processing rates toward multi-year lows. Russian crude production fell to 8.3 million bpd in June, the lowest level in 2.5 years, and Russian refinery throughput for July is expected to be near 3.5 million barrels per day, more than one-third below seasonal norms, as damaged units, maintenance constraints, and security risks weigh on operations. The disruption has tightened domestic gasoline and diesel balances, increased pressure on regional product markets, and complicated Europe’s effort to source alternative supplies away from exposed Middle Eastern routes.

 

Russia has extended diesel exports into August and gasoline export restrictions for the next six months to prioritise domestic fuel stability. Kazakhstan, which exports 80 per cent of its oil to Europe, has been hit by a Ukrainian attack on the Caspian Pipeline Consortium terminal on Russia’s Black Sea coast. The CPC route is strategically important because it handles a major share of Kazakhstan’s crude exports, with flows normally directed toward European refiners that are actively seeking non-Middle Eastern barrels.

 

Asian Refiners Move from Defensive to Opportunistic

 

Asian refiners were caught off guard during the earlier phase of the US-Iran conflict, when regional operating rates fell sharply and feedstock availability deteriorated. This time, the sector appears better prepared. China has reportedly instructed major refiners to maintain high fuel output to cushion domestic supply chains from Persian Gulf disruptions and potential product shortages. Chinese refinery throughput has increased as state refiners raise run rates, while gasoline and diesel stockpiles have fallen to multi-month lows, indicating that product market tightness is becoming more visible beneath the headline crude price rally.

 

China is the world’s largest crude importer, and any disruption to Middle Eastern flows would immediately affect refinery planning, shipping schedules, and strategic stock management. In this environment, crude import volumes, product inventories, and refinery run rates become more important than headline demand indicators. Higher imports may therefore reflect not only demand strength but also precautionary stock-building as refiners and policymakers prepare for elevated geopolitical risk.

 

US Inventories Remain a Critical Cushion, but Not a Comfortable One

 

The United States remains an important stabilising force, but its buffer is not unlimited. The latest weekly data show US crude inventories near 411.7 million barrels, still around 6 per cent below the five-year average. Gasoline inventories are about 7 per cent below normal, while distillate stocks remain roughly 10 per cent below their five-year average. Refinery utilisation above 96 per cent indicates that the downstream system is already running close to maximum seasonal capacity.

 

With refineries already operating at elevated rates, the scope to respond quickly to sudden global shortages in diesel, gasoline, or jet fuel is limited. Low crude stocks reduce the cushion for refiners, while low gasoline and distillate inventories raise the risk that any logistics disruption quickly passes through to wholesale fuel prices. Diesel, gasoline, and jet fuel inventories remain structurally tight in several regions, and logistical disruptions can quickly translate into price spikes for end users.

 

Energy Security Returns to the Centre of Inflation Risk

 

The macroeconomic implications are material. If Brent holds near or above $100, import-dependent economies in Asia and Europe will face a renewed terms-of-trade shock. Higher energy import bills weaken current account balances, pressure currencies, and raise subsidy burdens in countries where fuel prices are politically sensitive. The market is pricing in a 56 per cent chance of a Fed rate hike, and the ECB has also laid the groundwork for a September rate hike, while the US 30-year mortgage rate at 6.55 per cent will put pressure on the US housing market.

 

Outlook

 

Our base-case outlook is that Brent remains supported in the $90–$105 per barrel range in the near term as geopolitical risk, tight product inventories, and high refinery utilisation keep the market nervous. A sustained move toward $110–$120 is plausible if Red Sea attacks intensify, Hormuz traffic is again materially impaired, or Russian and CPC-related disruptions deepen. In that scenario, inflation expectations would rise, Asian importers would face renewed cost pressure, and governments may consider strategic stock releases or temporary fuel market interventions.

 

Conversely, if diplomatic channels reopen, tanker flows normalise, and Russian refinery operations stabilise, prices could retreat toward the mid-$80s as the market refocuses on recovering supply and softer demand elasticity. However, the downside appears limited while inventories remain below normal and chokepoint risks persist. For investors and corporates, the prudent strategy is to treat oil not as a one-directional price trade but as a geopolitical volatility asset. Hedging discipline, diversified procurement, and close monitoring of Hormuz, the Red Sea, Russian refinery outages, and Asian product inventories will be critical through the second half of the year.  ============================================= 

(Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)