Persian Gulf oil flows return to prewar levels, but Iran could resort to a ‘scorched earth campaign’ as U.S. deploys more ships and Marines to Mideast

Middle East crude exports have recovered to roughly 17.5 million barrels per day, or 98% of prewar levels, according to JPMorgan; Goldman Sachs estimated 19 million barrels per day, while Kpler said flows returned to prewar levels. About 40% of crude now avoids the Strait of Hormuz, but attacks on shipping, elevated insurance costs and threats to Gulf energy infrastructure keep supply risks significant. The U.S. blockade has left Iranian exports essentially at zero, while tighter sanctions and blocked funds have pressured Iran’s economy and currency; renewed conflict remains a risk.

Analysis

The market mechanism is a split between flow resilience and infrastructure vulnerability. Pipeline rerouting reduces the immediate sensitivity of Gulf exports to a Hormuz closure, but offshore transfers, elevated insurance costs, and attacks leave a persistent logistics premium; this is not a full normalization signal. More importantly, transit protection does not eliminate the tail risk of damage to producing or refining assets. That risk is convex: a limited incident may lift freight and insurance costs without materially reducing supply, while a successful infrastructure strike could produce a much larger, faster price response.

Near term, recovering exports argue against an unhedged directional oil long. Over the next 1–3 months, escalation or failed mediation could reprice crude and refined products sharply; diesel may be more exposed if refining or product logistics are hit. Over 6–18 months, sustained rerouting could entrench higher transport and security costs even without a closure. The export estimates cited are not fully comparable in scope or period, so avoid treating them as a precise measure of spare capacity or normal operations.

Contrarian point: markets may focus on whether ships can transit and underweight the separate threat to regional production. But the reported post-election military timeline is unverified and should be treated as a catalyst risk, not a base case. The balance favors defined-risk tail exposure over outright crude exposure until export and insurance data confirm whether disruption is worsening.

Key Decisions for Investors

• Avoid an outright crude-futures long solely on the geopolitical narrative: recovering flows can cap near-term prices, while a de-escalation headline could unwind some risk premium quickly.
• Consider a small, defined-risk 1–3 month Brent call spread as a convex hedge, preferably entering on a pullback in implied volatility rather than chasing a spike. The thesis is falsified by durable diplomacy plus continued export recovery and falling tanker insurance costs.
• Keep diesel and refined-product exposure on watch rather than initiating a broad energy-sector position. Add only if product-market data show tightening cracks or renewed refinery/logistics disruption; crude export totals alone do not establish that signal.
• Track Gulf tanker insurance and freight rates, actual export volumes by route, and verified damage to production or refining assets. A sharp deterioration in any of these would strengthen the tail-risk case; falling costs and uninterrupted flows would argue for reducing the hedge.