By mid-July 2026, Brent crude oil futures had risen for the third consecutive trading day, briefly approaching $86 per barrel, a near one-month high. The trigger was a new seven-hour US airstrike against Iran, targeting military facilities along the Iranian coast and around the Strait of Hormuz, while the US reimposed a naval blockade on Iranian ports. Just two days prior, Trump had threatened to bomb Iranian power plants and bridges next week if Tehran did not return to the negotiating table, and even did not rule out the possibility of ground action. This is not the first time this crisis has resurfaced; to understand why oil prices have surged again, it is necessary to first clarify the complete context of this six-month-long tug-of-war. From the Death of the Supreme Leader to the Ceasefire's Fragmentation This crisis began on February 28th with a large-scale joint attack on Iran by the United States and Israel. The suddenness and depth of the operation led to the assassination of Supreme Leader Ayatollah Khamenei at his residence in Tehran, along with the deaths of several high-ranking generals and potential successors—the most severe blow to the Iranian regime since the 1979 Islamic Revolution. In early March, within days, Iran's expert committee appointed Khamenei's son, Mojtaba Khamenei, as the new Supreme Leader, maintaining power largely in the hands of the conservative hardline camp, without the expected policy shift. From late February to May, the Strait of Hormuz was effectively closed, disrupting approximately one-fifth of the world's seaborne oil and liquefied natural gas transport routes. Brent crude surged to above $126 per barrel, and OPEC+ actual production plummeted from 42.77 million barrels per day in February to 33.13 million barrels per day in May, creating a record-breaking supply shock. On June 17-18, the US and Iran signed a memorandum of understanding, reaching a preliminary consensus on ending the conflict and reopening the Strait of Hormuz. The market immediately bet on a de-escalation of tensions, and oil prices fell sharply in June, briefly dipping below $70, almost erasing all gains since the start of the war. However, on July 7-8, the ceasefire agreement broke down, with Iran accusing the US of refusing to lift its naval blockade. Iran subsequently attacked a Qatari-flagged LNG carrier and several oil tankers, prompting the US to resume airstrikes. Over the past week, the two sides have exchanged barbs multiple times. The Iranian Revolutionary Guard has been accused of attacking seven ships, while the US has launched multiple strikes and re-announced its naval blockade. Trump initially proposed a 20% "protection fee" on passing vessels, but quickly withdrew due to backlash from allies, instead stating that compensation would be provided through Gulf state investments in the US. This timeline reveals a crucial fact: this is not a one-way easing of the crisis, but a cyclical war of "ceasefire-rupture-re-ceasefire-re-rupture," during which oil prices have experienced a dramatic rollercoaster ride, from around $72 pre-war to a peak of $126, then to $68 post-ceasefire, and currently around $85—fluctuations far exceeding what can be described as "mild consolidation." The current price is not driven by optimistic sideways trading, but by a revaluation of risk. Brent crude has rebounded more than 25% from around $68 in early July, currently trading in the $85-$86 range. Traffic through the Strait of Oman has decreased by more than 50% in the past week compared to the previous week, and some shipping tracking agencies show that almost no large vessels have passed through the "Southern Passage" around the Omani coast with their positioning signals activated since July 7th. Data from the U.S. Department of Energy shows that despite the ongoing conflict, more than 8 million barrels of crude oil were still passing through the Strait of Hormuz daily under U.S. military escort in mid-July, with daily outbound shipments from the Gulf region remaining at around 15 million barrels. This indicates that supply disruptions have not yet reached the near-shutdown level seen in February to May before the ceasefire, but vulnerability has clearly increased. More noteworthy is the divergence between inventory levels and refining margins: the latest report from the International Energy Agency points out that although the crude oil market appears to be well-supplied, the refined product market remains tight, with refining margins and refining profits reaching four-year highs. While global monitored inventories rebounded briefly in June, this was largely an illusion of "oceanic stockpiles," with OECD onshore inventories actually still declining. Nearly two-thirds of the June decline came from continued releases of government strategic reserves—meaning the real "safety cushion" is thinner than surface data suggests. In other words, the market is not ignoring the risks, but rather has just experienced a rapid shift from "downward revision of risk" to "upward revision of risk": the June plunge reflected excessive optimism about the ceasefire agreement, while the July rebound was a belated correction of the ceasefire's collapse. The market's pricing of geopolitical risks is always lagging rather than forward-looking; it's just that the direction of this lag has fluctuated repeatedly over the past two months. The supply-side buffer still exists, but it has clearly thinned. Increased production from non-OPEC+ oil-producing countries such as the US, Brazil, and Guyana, coupled with the continued large-scale release of US strategic petroleum reserves, has provided a crucial buffer for the market over the past six months, a key reason why Brent crude did not immediately surge to $100 after the ceasefire broke down. However, the US Energy Information Administration also points out that global inventories will continue to be depleted at a rate of over 2 million barrels per day in the second and third quarters of 2026, meaning the buffer is thinning rapidly rather than remaining stable. Although OPEC+ has raised production quotas for several consecutive months (an additional 188,000 barrels per day starting in August), the actual export capacity of core members such as Saudi Arabia, Kuwait, and Iraq will remain significantly lower than their quotas as long as passage through the Strait of Hormuz remains obstructed. These quotas are more like "paper quotas," with the actual supply recovery highly dependent on the situation in the Strait rather than OPEC+'s subjective will. China's crude oil imports in the second quarter remained at a near-decade low, and refinery operating rates were sluggish. This objectively relieved some supply pressure in other regions and is one of the important factors preventing oil prices from spiraling out of control. However, this is more of an unexpected shock absorber than a result of market-driven pricing risks. As for the passage through the Strait of Hormuz, traffic has plummeted by more than half in the past week. Iran insists that ships use the "northern route" within its territorial waters and charges passage fees, while the US maintains the "southern route" with naval escorts. The struggle between the two sides for control of the waterway remains unresolved, which is itself a direct driver of the current rebound in oil prices. The Hardline Stance of Iran Following Power Shift Currently, the highest authority in Iran is no longer Khamenei himself, who initiated the first round of confrontation, but his son, Mojtaba Khamenei. In the joint airstrikes at the end of February this year, the elder Khamenei and several potential successors were killed. Iran immediately initiated its second Supreme Leader transition since the 1979 Revolution, with an expert committee completing a lightning handover within days. This power transition itself is key to understanding Iran's current hardline stance: leadership changes often strengthen conservative and security-oriented factions in the short term, and the new Supreme Leader initially has almost no political space to make substantial concessions on foreign policy. The Revolutionary Guard played a crucial role in this transition, and it is widely believed that "removing Khamenei himself does not equate to regime change; the Revolutionary Guard is the regime itself." This means that even with a change in Supreme Leader, Iran's hardline foreign policy is likely to continue, rather than soften. In response to Trump's recent proposal for passage fees, Iranian Foreign Minister Araqchi emphasized that "Iran will always be the guardian of the Straits," while simultaneously haggling over the rates. This reveals Iran's vacillation between a hardline stance and its practical interests, an contradictory posture that increases the uncertainty of the negotiations. In terms of public opinion, since the death of the Supreme Leader, Iranian sentiment has been torn between relief and the desire for revenge. This complex public sentiment provides a certain basis for the new leadership's hardline stance on foreign policy, but also makes it difficult for Iran to make substantial concessions on core demands such as the nuclear issue, the lifting of sanctions, and control of the Straits in the short term. The US stance is characterized by both tough rhetoric and inconsistent policy. The Trump administration's recent statements on Iran exhibit a clear pendulum-like pattern: on the one hand, it continues to send strong signals—threatening to bomb Iranian power plants and bridges, and not ruling out ground action; on the other hand, it frequently corrects itself—first proposing a 20% protection fee for ships passing through the Strait of Hormuz, then withdrawing it a day later, citing that Gulf countries' investments in the US would more than compensate for losses; previously, it also threatened full-scale war before changing its tune, saying it did not believe war would resume, and predicting that oil prices would soon fall as ships leave the strait. This policy uncertainty is a major reason why the market struggles to stabilize risk premium pricing: traders must digest the actual escalation of military conflict while also allowing room for a possible 180-degree policy shift at any time. This is the underlying logic behind the rapid switching of Brent crude oil prices within the $68-$86 range in this round. Is market pricing sufficient? Historically, oil prices have experienced dramatic fluctuations over the past six months, ranging from $72 to $126, then to $68, and finally to $86. This indicates that the market is not insensitive to risk; rather, in situations of extreme information asymmetry and fluctuating circumstances, directional judgments regarding risk pricing have repeatedly been flawed. The optimistic pricing of the ceasefire agreement in June proved to be overly premature, and the rebound in July was a retrospective correction of the ceasefire's collapse. Structurally, crack spreads and refining margins have risen to four-year highs, risk signals more sensitive than the crude oil futures curve. This suggests that downstream markets are quite concerned about actual supply disruptions, only that crude oil futures have been relatively suppressed by increased production from non-OPEC+ countries and the release of strategic reserves. Regarding inventories, OECD government strategic reserves have fallen to their lowest level since December 1990, meaning that if the situation deteriorates further, buffer measures will be more limited than before—this is the next risk that the market has not yet fully priced in. Three Scenarios If the US and Iran resume negotiations and restore a ceasefire within weeks, gradually restoring passage through the Strait of Hormuz, coupled with OPEC+ production increases gradually materializing into actual output, oil prices may fall back to around $70. The International Energy Agency predicts that global supply and demand will shift to a surplus by the end of the year; this is a relatively optimistic scenario. If the two sides maintain the current stalemate of fighting while negotiating, with intermittent passage through the Strait, oil prices will likely fluctuate repeatedly between $75 and $95, with volatility remaining high; this is the most likely baseline scenario. If negotiations completely break down, and Iran attempts to completely control the northern shipping lanes of the Strait and impose a larger-scale blockade on Western ships, a retest or even breakthrough of the previous wartime high of $126 cannot be ruled out. However, this requires Iran to bear extremely high political and military risks given its unstable domestic political situation and the instability of its new leadership; currently, the probability seems relatively low. The current oil price of around $85 reflects neither widespread market optimism about risks nor a complete loss of control over the crisis. Rather, it indicates a ongoing tug-of-war – a cycle of ceasefires, breakdowns, and renewed ceasefires could repeat itself. It is recommended to closely monitor the actual traffic volume in the Strait of Hormuz (especially the progress of the dispute between the southern route and Iran's insistence on the northern route), whether the statements of Iran's new Supreme Leader and the Revolutionary Guard signal substantive negotiations, whether the gap between OPEC+ quotas and actual exports can narrow, whether Chinese refinery operating rates and crude oil import data show an inflection point, whether the remaining capacity of the US Strategic Petroleum Reserve and the crack spread widen further, and the consistency of the Trump administration's statements on the Gulf situation. Given that the Iranian regime has just undergone its most significant power transition in half a century, and the new leadership is still consolidating its position, the uncertainty of this crisis may be deeper and more persistent than the surface price range suggests.