23JUL

Brent falls below its pre-war level

3 min read

20:33UTC

Brent crude fell more than 4% to a $72.64-$73.72 range on 25 June, dropping under its pre-war February level and erasing the war premium that had pushed it past $116 at the height of the IRGC closure.

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ConflictDeveloping

Key takeaway

Oil has declared the war over at $72-73, but the minefield and the underwriters have not.

Brent Crude fell to a range of $72.64 to $73.72 on Thursday 25 June, down more than four per cent in a single session and below its pre-war February level ¹. Brent is the global oil benchmark that sets the price of roughly two-thirds of internationally traded crude, so its level feeds directly into petrol, diesel and inflation worldwide. The war premium that pushed it past $116 at the height of the IRGC closure is now entirely gone.

The fall extends a steady reversal. Brent traded at $76.14 only the day before , and held near $80.59 while Iran's Islamic Revolutionary Guard Corps (IRGC) still enforced its Hormuz closure . Traders have now priced the benchmark below where it sat before the 28 February strikes, on the same morning the IRGC rejected the Oman corridor and ordered vessels onto Channel 16.

The market is pricing a normalisation the water has not delivered. Mines remain uncleared and need 40 to 50 days of minimum sweeping, foreign-flag commercial flow runs at a fraction of the pre-war 94 transits a day, and no Protection and Indemnity club has reinstated war-risk cover. Traders are treating the corps's threats as bluff and the Korean sailings as the true signal. Because the premium is fully priced out, a single mine strike or one boarding would reprice the entire curve with no buffer to absorb it.

Deep Analysis

In plain English

Oil's global price is set by traders in markets like London, who buy and sell contracts based on what they expect the situation to be in the future. On Thursday, those traders decided the Iran crisis was effectively over and sold their 'war premium', the extra they had been charging because of the danger, pushing the price of oil below where it was before the war started. On the water, nothing has changed. Mines seeded by the IRGC in June remain uncleared. Shipping insurers still will not cover ships crossing the strait. And Iran's military declared that same morning that it would not accept the new safety route. Oil traders are betting everything will be fine; the mines and the insurers are not.

Deep Analysis

Root Causes

Futures markets price the expected outcome of a geopolitical resolution, not the physical state of the supply chain on the day of trading. The Korean transits and the diplomatic language of both Oman and the GCC signalled to algorithmic trading systems that the closure was ending, producing a cascade sell-off of the war premium regardless of whether ships could actually transit with cover.

Chinese buyers received Iranian crude throughout the conflict via the shadow fleet, suppressing the actual supply shortfall below the headline numbers implied by a closed Hormuz. With GL X now authorising Iranian oil sales through 21 August , the partial legalisation of those flows removed residual uncertainty about Chinese purchasing volumes, accelerating the premium sell-off.

A price floor no longer exists: because the premium is fully priced out, a single mine incident or IRGC boarding would reprice from zero premium rather than from a cushioned level. Spot price carries none of the tail-risk cost that physical insurance markets are still pricing at 20 times pre-war rates.

What could happen next?

Risk
Brent with zero war premium has no downside cushion: a single mine strike or IRGC boarding would produce a larger proportional price spike than any event during the conflict, because traders would be repricing from a fully discounted base.
Consequence
Gulf producer state budgets, sized for $80-90 Brent, move into deficit at sustained $72-73, pressuring Saudi Arabia in particular to push OPEC+ for production cuts that would reverse the price decline and contradict their diplomatic stance on Hormuz normalisation.

Source Landscape

This story draws on centre-right-leaning sources from United Arab Emirates

United Arab Emirates

Primary parallel: The Suez Canal closure (1967-75) shows the mechanism in reverse. When the canal shut after the Six-Day War, tanker markets priced a permanent Cape routing premium within weeks. When it reopened in 1975, crude prices did not fall immediately to pre-closure levels because the physical infrastructure for Suez routing had partially degraded.

Brent's current behaviour is the forward version: markets have priced reopening before the physical re-enablement conditions (mine clearance, P&I reinstatement) exist, exactly the inverse error of 1975.

Counter-parallel: The 1990 Gulf War oil shock shows the opposite error: crude spiked from $17 to $46 within three months of Iraq's Kuwait invasion, pricing a supply catastrophe that never fully materialised because Saudi Arabia raised production within 30 days. In 1990, traders overweighted the supply shock. In 2026, traders appear to be underweighting the physical constraint.

Brent at $72-73 sits below the fiscal breakeven for Saudi Arabia (approximately $80-90), Kuwait (approximately $65), and Iran itself (approximately $80-90 pre-war). At current levels, Gulf producer state budgets move into deficit within a quarter at sustained prices. For Iran, lower Brent reduces the value of the oil revenue GL X unlocks.

London P&I hull war-risk cover remains at 2% of vessel value, 20 times the pre-conflict baseline, meaning the physical cost of transit has not moved even as the futures price has. Two tiers now operate simultaneously: buyers who can self-insure or access shadow fleet cover (primarily Chinese state companies) pay spot price; buyers who require London P&I cover pay spot plus 2% of vessel value per crossing plus freight-rate premium, which at a $150 million vessel represents $3 million per transit.

Consensus view: Oxford Economics' commodity research team and the Energy Policy Research Group at Cambridge assess Brent's fall below pre-war levels as a forward-loading error: futures markets priced a diplomatic settlement as equivalent to physical reopening, ignoring the 40-50 day mine-clearance lag and the continued absence of P&I cover.

The divergence between spot price and physical availability is the largest since the 2008 financial crisis inverted the oil curve, when demand destruction was priced in advance of production adjustment.

Counter-view: Beijing's National Development and Reform Commission energy analysts and researchers at the China Energy Security Institute argue the Brent move is structurally correct: Chinese buyers never stopped receiving Iranian barrels through the shadow fleet, so the physical disruption was always smaller than Western indices implied. Brent's return to pre-war levels reflects a partial restoration of non-Western supply chains rather than a mispriced settlement.

Key tension: Whether oil markets are rationally pricing the shadow fleet as the effective supply normaliser, making the mine and insurance constraints a tail risk rather than the base case, or whether they are systemically discounting a physical chokepoint that the shadow fleet cannot fully substitute for.

Sources:Gulf News

Mentions:Brent Crude →Strait of Hormuz →Gulf News →Beijing →London →Islamabad →Gulf War →Iran →Islamic Revolutionary Guard Corps (IRGC) →Oxford Economics →Cambridge →Iraq →Saudi Arabia →China →Kuwait →Oman →VHF Channel 16 →

First Reported In

Update #138 · Three flags over Hormuz, none enforced

Gulf News· 25 Jun 2026

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Causes and effects

Caused by

Trump orders a DOJ oil-gouging probe

Brent fell from $76.14 on 24 June (ID:4468) to $72.64-$73.72 on 25 June, erasing the war premium across two sessions.

Occurred 24 Jun 2026

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Brent shrugs off the IRGC closure

Brent at $80.59 during the IRGC closure has now fully reversed to below pre-war levels as markets price the threat as bluff.

Occurred 20 Jun 2026

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IRGC rejects the Oman Hormuz route

Markets priced Brent below the war premium on the same morning the IRGC rejected the Oman corridor, treating the corps's mandate as unenforceable.

Occurred 25 Jun 2026

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This Event

Brent falls below its pre-war level

The oil market has priced the Iran conflict as over while the strait stays mined, uninsured and contested, leaving no cushion against a reversal.

Led to

Brent falls straight through the strikes

Brent's $71.99 settle on 26 June continued the war-premium erasure from $72.64-$73.72 on 25 June, falling further through the kinetic exchange.

Occurred 26 Jun 2026

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Different Perspectives

IAEA (Rafael Grossi)

IAEA inspectors logged Zaporizhzhia's 22nd loss of off-site power, ten of them in the last three months, after a thunderstorm knocked out the plant's sole surviving backup line. Grossi reads the accelerating frequency, not any single outage, as the safety signal now that the plant's redundancy is exhausted.

United States (Treasury/OFAC)

Washington has let general licence 134C, its Russian crude waiver, lapse for 36 days with no successor, the longest gap of the war. Treasury has not said whether the non-renewal reflects deliberate policy or administrative delay, leaving buyers to price in compliance risk rather than wait for clarity.

Slovakia

Slovakia dropped its hold-out on the EU's 21st sanctions package only after winning a 2028 guarantee phasing out Russian gas, the exact pipeline dependency, roughly 80% of its crude supply, that gave it leverage. Bratislava's climbdown clears the package but leaves the same single-veto mechanism intact for the next round.

Russia (Kremlin and general staff)

General staff chief Gerasimov claimed Donetsk captures on 18 July that ISW says it cannot corroborate, extending a pattern ISW clocked at a 5:1 exaggeration ratio earlier this year. Moscow is conditioning its public for a possible autumn mobilisation after September's Duma elections rather than acknowledging the front has stalled.

Ukraine (Zelenskyy government)

Zelenskyy dismissed his commander-in-chief, defence minister and chief of general staff within eight days, replacing Syrskyi with Drapatyi and Hnatov with Skybiuk as protesters demanded Syrskyi go and Fedorov return. Kyiv frames the sweep as a bet on manoeuvre capacity ahead of a feared Russian autumn surge, not the disarray critics read into three changes in a week.

The United Kingdom

Starmer pledged £300 million in Kyiv on 16 July toward Ukraine's Gripen E squadron, adding to the PURL expansion Trump and Rutte had announced two days earlier. London is paying into a scheme built around a shortfall NATO's own published $4bn-plus pledge does not close against Zelenskyy's roughly $15bn stated need.