US-Israeli war with Iran: Five energy market factors dictate fighting levels
As the U.S.-Israeli war with Iran enters October 2026, oil, gas, and fuel prices have become central battlegrounds. While Washington strives to lower energy costs, Tehran aims to keep them high, with five key market developments dictating whether fighting escalates or de-escalates.
U.S. Petroleum Reserves Drop to Lowest Level Since 1982
The U.S. has attempted to cushion its economy from coercive actions against major oil exporters through shale production, natural gas reserves, and strategic petroleum releases. However, these buffers face unprecedented strain. As part of a 400-million-barrel release coordinated via the International Energy Agency, the U.S. is finishing a drawdown of 172 million barrels, which will drop federal holdings to 243 million barrels—the lowest level since 1982.
Industry experts warn that inventory is approaching critical thresholds where salt caverns risk structural integrity. Meanwhile, refined diesel is in far worse shape than crude oil.
China Manages Imports While Sustaining Iranian Purchases
At the same time, China has continued purchasing Iranian crude despite the resumed U.S. naval blockade. By invoking its 2021 blocking law in May, Beijing instructed five domestic refineries to ignore U.S. sanctions, making China the primary controller of the market for Iran’s remaining export oil.
Houthi Advance in Yemen Redefines Red Sea Shipping
The Iran-backed Houthi movement advanced rapidly down the Red Sea coast after breaking through Saudi-backed lines, seizing Mokha and strategic islands in Bab al-Mandab. Simultaneously, drone strikes forced the temporary suspension of Saudi Arabia’s East-West Pipeline.
Prior to these disruptions, the pipeline carried millions of barrels of Red Sea crude exports daily. With those shipments restricted, Saudi Arabia has been forced to reroute millions of barrels back through the Strait of Hormuz via risky shuttle runs.
Contest Over the Strait of Hormuz Intensifies
The Strait of Hormuz remains the primary bottleneck for Gulf oil exports.
While these shuttle runs have successfully brought outbound crude volumes closer to pre-war levels, refined product exports remain heavily depressed, keeping global fuel markets volatile.
The global benchmark Brent crude has risen from below $75 before the war to peaks approaching $130 a barrel.