US President Donald Trump’s decision to pause further major strikes against Iran has eased fears of an immediate escalation, but it has not removed the economic and security risks facing Gulf energy producers. Even without a return to full-scale fighting, persistent attacks on shipping, elevated insurance premiums and vulnerable energy infrastructure are making the region increasingly expensive to operate in.
The fragile situation is creating a new reality for global oil markets: Gulf crude exports are recovering, but the cost and danger of transporting energy remain significantly higher than before the war. This could help prevent oil prices from falling much further, even as investors become more optimistic about the prospects for diplomacy.
The central question is whether Washington and Tehran can turn the current military pause into a lasting settlement or whether the region will remain trapped in a costly conflict that neither side is prepared to end.
Why Have Oil Prices Fallen Despite Continued Conflict?
Brent crude fell below $90 a barrel on Tuesday for the first time since late August, extending a decline of more than 20% from its recent high of $118 on October 30.
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The decline reflects growing investor expectations that another major escalation between Washington and Tehran may be avoided. Trump’s decision to hold off on further military action following appeals from Gulf allies has reinforced that outlook.
The Republican Party’s poor performance in the US midterm elections has also increased pressure on the administration to reconsider the political costs of continuing the war.
However, lower oil prices do not necessarily indicate that the underlying security situation has improved substantially. The US military continues to build up forces in the Middle East, while diplomatic efforts involving Qatar and Pakistan have yet to bridge major differences between Washington and Tehran, particularly over Iran’s nuclear programme.
The current pause may therefore represent a tactical decision rather than a meaningful step toward ending the conflict. Trump could still consider renewed military action if negotiations fail to produce an agreement that meets Washington’s demands.
For energy markets, this distinction matters. The immediate risk of a major military escalation may have declined, but the costs associated with operating in an unstable Gulf have not disappeared.
How Are Gulf Oil Exports Recovering Despite Hormuz Risks?
Despite the continuing security threats, crude oil exports from the Gulf have recovered significantly.
According to Kpler, shipping through the Strait of Hormuz averaged 10.5 million barrels per day from the beginning of October. Although this remains below the pre-war average of 13.5 million barrels per day, it represents a substantial improvement from the worst period of disruption.
When alternative export routes that bypass Hormuz are included, total average Gulf crude exports reached 16.7 million barrels per day over the same period, approaching the pre-war level of 17 million barrels per day.
This recovery demonstrates the ability of Gulf producers to adapt to serious disruptions in one of the world’s most important energy corridors.
However, maintaining these flows requires increasingly complicated arrangements. Exporters have been sending tankers through Hormuz in convoys, using narrower routes close to Oman’s coast under US Navy protection and conducting ship-to-ship transfers to reduce the exposure of individual vessels.
These measures have helped restore exports, but they come with substantial financial costs. Freight and insurance expenses remain approximately ten times higher than before the war.
Consequently, the recovery in export volumes should not be confused with a return to normal commercial conditions. Gulf producers are moving oil, but doing so requires greater security arrangements, more complex logistics and significantly higher expenditure.
Why Is Shipping Through the Strait of Hormuz Still Dangerous?
The Strait of Hormuz remains one of the conflict’s most important strategic pressure points.
Iranian attacks on vessels transiting the waterway have become increasingly frequent. The International Maritime Organization recorded 131 confirmed incidents near the strait between the beginning of the war on February 28 and November 9.
October alone accounted for 35 incidents, the highest monthly total recorded during the conflict. The actual number may be higher because shipping companies do not always report incidents that cause limited or no damage.
This continuing threat has fundamentally changed the economics of maritime transport in the Gulf.
Higher insurance premiums, expensive security arrangements and the need to coordinate vessel movements have increased the cost of transporting crude oil and liquefied natural gas. Even when ships reach their destinations safely, the financial burden remains.
Without a durable agreement between Washington and Tehran, shipping companies have little reason to expect these costs to return quickly to pre-war levels.
The situation also creates a broader risk for international energy markets. A renewed wave of attacks could disrupt shipping again, while even a relatively stable security environment may keep transport costs elevated for months.
Why Is the Current No-War, No-Peace Situation Unsustainable?
Gulf energy producers have demonstrated considerable resilience by restoring much of their export capacity despite the conflict. However, adapting to a crisis does not mean resolving it.
Iran has incentives to maintain pressure on shipping through Hormuz, particularly while the US blockade on its oil exports continues to place pressure on its economy. Tehran may calculate that it can sustain the confrontation and use the threat to maritime security as leverage in negotiations.
Washington, meanwhile, must decide how long it is prepared to bear the financial and military burden of protecting commercial traffic through the waterway.
The uncertainty is also discouraging long-term investment in damaged Gulf energy infrastructure. Saudi Arabia, in particular, continues to face attacks from Yemen’s Iran-aligned Houthis.
Energy operators may hesitate to commit substantial resources to permanent reconstruction if repaired facilities could become targets again. Short-term repairs and temporary workarounds are therefore more likely to remain part of the region’s energy strategy.
This creates a potentially damaging cycle: insecurity delays reconstruction, limited reconstruction leaves infrastructure vulnerable, and continued vulnerability discourages investment.
For Gulf economies that depend heavily on reliable energy exports, the consequences extend beyond immediate production losses. Persistent uncertainty can affect investment decisions, shipping contracts and the long-term competitiveness of regional energy infrastructure.
What Choices Does Trump Have?
Trump faces an increasingly difficult strategic calculation.
The midterm elections demonstrated the domestic political costs of an unpopular war. Continuing military operations could further weaken Republican support and complicate the administration’s domestic agenda.
However, accepting an agreement that does little to constrain Iran’s nuclear programme could also create political problems for Trump. Critics could portray such an outcome as a failure to achieve the strategic objectives used to justify the conflict.
If diplomatic negotiations make little progress in the coming weeks, the president could conclude that renewed military strikes would strengthen Washington’s position at the negotiating table.
Yet another round of attacks would not necessarily produce a better outcome. Unless military action significantly weakens Iran’s ability or willingness to continue the confrontation, it could harden Tehran’s position and make a diplomatic settlement even more difficult.
The administration must therefore weigh the uncertain benefits of renewed military pressure against the possibility of prolonging a conflict that is already imposing significant economic and security costs.
Could the Iran War Keep Oil Prices Higher for Longer?
The greatest danger for global energy markets may not be a sudden return to full-scale war, but the normalisation of a prolonged low-intensity conflict.
In this scenario, Gulf oil exports could continue recovering while shipping remains dangerous, insurance stays expensive and energy infrastructure remains exposed to attacks.
That combination would create a persistent cost burden for producers and consumers without necessarily producing the dramatic supply shock associated with a complete closure of the Strait of Hormuz.
It could also establish a floor under global oil prices by keeping the risk premium associated with Gulf exports elevated, even when immediate fears of escalation decline.
Trump’s pause in military action has therefore reduced one source of uncertainty without addressing the deeper causes of instability. Unless Washington and Tehran reach a sustainable agreement, the Gulf may remain caught between war and peace, with the global energy market paying the price for an unresolved confrontation.
With information from Reuters.
