Six Months In, the Buffers Are Gone: Notes on Columbia Energy Exchange and the Widening Iran War

Contents

1. What this episode is about
2. Key points
3. 1. Prices stayed flat because buffers absorbed the gap
4. 2. There is still oil; what matters is how fast it’s being drawn
5. 3. Hormuz flows rose, then fell again, and freight adds $25 a barrel
6. 4. The tightest link is diesel and refining capacity
7. 5. Saudi Arabia is squeezed from both sides, and Washington declined to help
8. 6. Iran’s lesson: when pushed, hit back hard and everywhere
9. 7. Qatar may buy US LNG, and Europe’s winter depends on the weather
10. Further thoughts
11. ”Prices didn’t move for months. Doesn’t that mean the market already priced it in?”
12. ”Officials say the strait is mostly open again. Can I trust that?”
13. ”Everyone says the war ends after the midterms. Should I plan around that date?”
14. Resources
15. One thing to take with you

A state without nine years of reserves is called insufficient; without six years, it is in urgency; without three years, it is a state no longer its own.

—— Book of Rites, “Royal Regulations” (pre-Qin to Western Han; author’s translation)

What this episode is about

On the September 15, 2026 episode of Columbia Energy Exchange, host Jason Bordoff brought back three scholars from Columbia’s Center on Global Energy Policy: Daniel Sternoff, who follows oil markets; Karen Young, who follows the Gulf states; and Richard Nephew, who talked through Iran’s strategy.

The Iran war is in its seventh month. Brent crude broke $100 a barrel for the first time since July, and US diesel topped $6 a gallon for the first time in history. Last week Saudi Arabia’s East-West pipeline was hit, Iran-aligned Houthi forces seized Yemen’s Red Sea coastline, and a Panama-flagged tanker carrying Iraqi fuel oil caught fire in the crossfire. The four of them covered three questions: why prices took this long to climb, how the fighting spread from the strait to the Red Sea, and how this could end.

At the close, the host recalled that six months ago the center spent a weekend planning rapid-response blog posts, papers and podcasts, on the assumption that the crisis would be short. By the end of this recording, all four said they could not see an end in sight.

Key points

1. Prices stayed flat because buffers absorbed the gap

Six weeks ago oil sat in the mid-$70s. It has rallied about $30 since the US-Iran memorandum of understanding collapsed in July, and Brent now trades around $107. Daniel says the difference is that the buffers are used up. The market entered the crisis with four of them: last year’s surplus as OPEC unwound cuts, oil sitting on tankers, the largest strategic reserve release in IEA history (the US alone released 1.2 million barrels a day at the Q2 peak), and Chinese refiners cutting runs hard. By September, last year’s surplus inventory is gone and the US release is winding down. A global shortfall of roughly 5 million barrels a day has nowhere left to hide.

2. There is still oil; what matters is how fast it’s being drawn

The host pushed back: the US reserve still holds nearly 300 million barrels, and other countries have stocks too, so why is the market nervous? Daniel’s answer is the pace of draws. If the US releases another big tranche once the SPR is below 300 million barrels, he said, “we’re not cutting into muscle, we’re cutting into bone.” Commercial inventories keep falling, no new reserve barrels are coming to refill them, and the market is pricing that in ahead of time. China is the exception: with close to a billion barrels in government and commercial stocks, China will be fine. But Chinese imports have come back 1 to 1.5 million barrels a day from the lows, which leaves everyone else tighter.

3. Hormuz flows rose, then fell again, and freight adds $25 a barrel

With US Navy escort, flows through the Strait of Hormuz reached 7 to 8 million barrels a day in August, then slipped back to 4 to 6 million in September. Ships turn off their transponders and move through set corridors at set times, while a handful of companies run two-day overnight relay shuttles under fire. The IMO counts 21 mariners killed, which Daniel noted is more than US combat deaths across the whole crisis.

Tanker rates from the Middle East Gulf to Asia hit $185 per metric ton, against a normal $20 to $40, which adds roughly $25 a barrel for an Asian refiner. Saudi crude leaving Yanbu has to go north through Suez and then around the Cape of Good Hope to reach Asia. Chinese independent refiners who can’t get Iranian oil now buy from Canada and Brazil. Voyages get longer, and the same tankers stay tied up at sea longer.

4. The tightest link is diesel and refining capacity

A crack spread is the price of a refined product minus the price of crude, and it tells refiners which product to make more of. The US diesel crack is now above $100 a barrel on top of crude that is itself above $100, so bulk diesel costs more than $200 a barrel. Three things are happening at once. Ukrainian drones have knocked out Russian refining capacity, and Russia has banned diesel exports, removing about 900,000 barrels a day. Before the war, about a fifth of global seaborne diesel and jet fuel came through Hormuz. And US refineries are already running at 97 to 98 percent.

Over the past decade, countries closed refineries on the assumption that oil demand had peaked, and no price signal can build new capacity overnight. Two-thirds of the IEA release was crude, because the reserve system built after the 1970s was designed for crude oil crises; there are no matching reserves for refined products. Daniel expects price will have to ration demand from here. A US farmer will likely just pay up and pass it through to food prices, while places like Thailand and East Africa will see demand cut first.

5. Saudi Arabia is squeezed from both sides, and Washington declined to help

Karen walked through how the Red Sea route deteriorated. This summer an Iranian plane landed at Sanaa airport in Yemen. Saudi Arabia suspected it was bringing personnel or material to the Houthis and bombed the airport, setting off a new round of reprisals. The Houthis took advantage of divisions within the Saudi-backed Yemeni government and pushed down the Red Sea coast, capturing Mocha and several islands. The Saudi crown prince reportedly asked the US to help push back, and President Trump said no; in December 2025 the Saudis themselves had told the UAE to leave Yemen. Nobody else is coming.

The East-West pipeline can carry 7 million barrels a day and moved a little over 3.5 million at its peak; it is now below 2 million. This attack was launched from Iraq, and repairs could take weeks. Refineries that depend on Saudi West Coast crude lose feedstock too.

6. Iran’s lesson: when pushed, hit back hard and everywhere

Richard started from Iranian strategic thinking. For years Iran built a proxy network so that it could fight its enemies far from its own territory, a lesson from the Iran-Iraq war. Between 2023 and 2025 that system collapsed. Iran’s conclusion was that it had built capabilities but was always too cautious to use them. The next time it is pushed, it should push back hard in many places, because waiting only lets those assets go to waste.

Iran is feeling economic pain. Little oil gets through the blockade, its oil held abroad is expected to run out around October, the rial keeps losing value, and widespread protests in January were driven largely by economics. But the people in charge are IRGC hardliners, many of them Iran-Iraq war veterans, who think this generation has gone soft and believe the US will fold first.

7. Qatar may buy US LNG, and Europe’s winter depends on the weather

Karen flagged a headline: Qatar is considering contracts to buy US liquefied natural gas. Its own gas can’t get out through the strait, so to meet its contracts it would buy gas elsewhere and pass it on to customers. Qatar’s growth forecast has been cut by more than 14 points and its budget by 30 percent; Oman is the only one of the six Gulf states with a positive growth outlook. European gas storage is in the high 70s percent, but even a normal winter could leave it in the teens by the end of the season. For a cold winter, some forecasters see Dutch TTF gas at €100 to €150 per megawatt-hour. As Daniel put it, “we’re in the hands of the weather gods at this point.”

Further thoughts

”Prices didn’t move for months. Doesn’t that mean the market already priced it in?”

This part made me think of a habit of mine: bad news comes out, the price doesn’t react, and I conclude the impact was overstated. The episode gave me a better way to break it down.

First, separate the shock into flow and stock. What the strait removes is daily flow. Inventories, strategic reserves and Chinese run cuts are stocks or temporary measures that can cover for lost flow for a while. A quiet price can mean a small shock, or it can mean the buffers are still thick enough. The price alone can’t tell you which.

Second, ask how many layers of buffer there are and how long each one lasts. The episode laid out the math. An original gap of about 20 million barrels a day was covered by bypass pipelines (up to about 5 million, now about 2), lower Chinese imports (down as much as 5 million, with about 2 back), inventory draws of 5 to 6 million a day, and partially restored Hormuz transits. What remains is a gap of about 5 million barrels a day. Every layer has an expiry date: the US release ends in September, and Iran’s oil held abroad runs out in October.

Third, find the layer with no buffer at all. Crude has strategic reserves; diesel does not. Higher crude prices can squeeze out a few hundred thousand barrels a day of shale; no price can build refining capacity overnight. The bottleneck sits in the layer with nothing underneath it, which is why diesel broke before crude.

This read could turn out wrong in two ways: if Hormuz transits get back above 7 million barrels a day and hold there, or if high prices knock out demand in Asia and East Africa sooner than expected. Those are the two numbers I plan to check first next time.

”Officials say the strait is mostly open again. Can I trust that?”

The episode gave a concrete comparison. The president cited 18 million barrels a day. The energy secretary said 9 million through the strait plus more through bypass pipelines. The researchers, counting loadings on satellite data, estimate 5 to 6 million a day in September. On top of that, volumes from the Saudi West Coast have been falling, so the bypass figure was being counted twice.

When claims conflict, I look for prices that sit outside the claims. $185 per metric ton in freight and diesel cracks above $100 are numbers that shipowners and refiners put real money behind. If the strait had recovered as much as officials say, freight and cracks would loosen first. When the story says “improving” and the price at the bottleneck is still setting records, I lean toward the price.

Panic can push prices too far as well, so I watch whether a move holds. A one- or two-day spike is noise; weeks without a pullback look structural.

”Everyone says the war ends after the midterms. Should I plan around that date?”

The president predicts the war will end shortly after the midterms, while his own administration reportedly warns in private that Iran can hold out much longer. Richard opened his answer with a dry line: “seeing as the war was won back in March, I’m not actually sure why we even have much of an issue.”

He sees two ways it ends. One is a new accommodation, which would likely mean concessions to Iran, including accepting some degree of Iranian administrative control over the strait. The other is a far larger US commitment carrying far higher risk. He pointed out that a repaired Yanbu can be attacked again and a reopened strait can be closed again: as long as Iran keeps those capabilities, every repair can be undone.

Meanwhile the Gulf states caught in the middle are going their separate ways. A meeting in Oman on shared management of the strait, set for September 14, was postponed indefinitely: Saudi Arabia said the timing was wrong, Bahrain declined outright, and the UAE was undecided about what level of delegation to send. A senior Emirati official said at a forum in Abu Dhabi that the UAE would not forget the attacks, while the Abu Dhabi crown prince told the BRICS meeting in New Delhi that the door to dialogue with Iran is open. Karen called this doing “diplomacy and deterrence at the same time.” Each state is now going back to Iran for its own bilateral assurances, which weakens any collective Gulf position.

My takeaway was to swap “what date does it end” for “what signal would each path show first.” Movement toward accommodation would first show up as Iran gaining some management role in the strait and bilateral Gulf-Iran deals coming into view. Movement toward escalation would first show up as Washington debating a much larger military commitment and the proxy fronts widening further. I treat the timeline as background and adjust when a signal actually appears.

Resources

• Columbia Energy Exchange episode page and commentary from the Center on Global Energy Policy: energypolicy.columbia.edu
• IEA Oil Market Report (monthly): global supply-demand balance and inventory changes
• US EIA Gasoline and Diesel Fuel Update and refinery utilization in the Weekly Petroleum Status Report
• Gas Infrastructure Europe’s AGSI+ platform: European gas storage levels

One thing to take with you

Whether a system can hold depends on how long its buffers last; a calm surface only tells you the buffers haven’t run out yet.

One exercise I’ve tried: pick something you rely on every day and have never imagined breaking, like your household income, the colleague who carries your team, or your own sleep. Write three lines on a sheet of paper. First, what is currently holding it up (savings, a backup person, coffee). Second, at today’s rate of use, how many weeks that buffer can last. Third, which link has no buffer at all, so that one break takes you straight to empty.

Raw Markdown

This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.