Ruehl said the market has so far shown resilience to geopolitical tensions, but attacks on overland pipelines or critical energy infrastructure could create a more lasting supply shock.
Ruehl said recent events in the Strait of Hormuz have resembled previous disruptions, with oil markets continuing to function because of adequate inventories and spare supply.
However, he warned that the nature of the risk is changing and added that the situation could escalate if overland pipelines are attacked. Such incidents would introduce lasting danger to energy infrastructure and could mark a second round of the conflict, bringing back concerns over higher prices and their impact on the global economy.
Despite crude prices rising nearly 30% from their July lows, Ruehl argued that the global economy today is less sensitive to oil price shocks than it was decades ago. He said the amount of oil required to generate economic output has fallen sharply over time, meaning prices would have to move much higher than in previous cycles before triggering significant economic damage.
He cautioned that price levels become less relevant if physical supplies are disrupted, noting that damage to pipelines or production infrastructure cannot be resolved as quickly as temporary shipping disruptions and could rapidly reduce already declining inventories.
Ruehl identified China as the largest source of uncertainty for the oil market. He said China had built significant strategic petroleum reserves before the current geopolitical tensions, although the exact size of those inventories remains unclear. According to Ruehl, much of the recent weakness in China’s crude imports likely reflects inventory drawdowns rather than weaker underlying demand.
“The biggest uncertainty in this market is China,” he said. While he expects China to replenish its reserves eventually, he believes Beijing is likely to wait until oil prices decline, as it has done historically. In contrast, the US faces a different challenge because its Strategic Petroleum Reserve is publicly reported and remains at one of its lowest levels in decades. That could make energy prices a more important factor in policymaking and geopolitical decisions.
Ruehl also warned that policymakers may become more willing to take risks if previous disruptions fail to generate meaningful economic consequences. He said markets have so far absorbed shocks better than many expected, but that resilience could encourage further escalation.
The uncertainty around the Strait of Hormuz, the Red Sea and other energy transit routes means markets will continue to monitor geopolitical developments alongside supply and demand fundamentals.
For the full interview, watch the accompanying video
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