TWICE now, global oil markets have priced in the closure of the Strait of Hormuz, the choke point through which roughly a fifth of the world’s crude and a third of its liquefied natural gas once flowed, and twice they have priced it back out.

After the war between the US and Iran began, Brent crude briefly spiked past US$120 a barrel.

By June, when a reopened the strait, Brent had fallen to US$72.24, the lowest since the US and Israel attacked Iran on Feb 28.

Then, when the ceasefire collapsed in early July and strikes resumed, prices climbed higher to the US$80 range, but that is still far lower than their peak.

The whiplash in oil prices is the story of this war’s energy economics so far: extraordinary shocks, absorbed and unwound with a speed that would have seemed implausible a decade ago.

The question worth asking now is how much slack is actually left in the system, and what happens when that slack runs out.

Mitigating factors

The market has held up better than expected because Opec+, led by Saudi Arabia and the United Arab Emirates, entered this war with more idle production capacity than at almost any point in the past two decades – the product of years of voluntary output restraint.

That cushion let the group backfill lost Iranian and disrupted Gulf barrels without the kind of scramble that defined earlier oil shocks.

Then, in March, the US and roughly 30 other International Energy Agency members agreed to release around 400 million barrels from strategic stockpiles, with