Global energy markets are on high alert amid renewed fears that escalating military tensions between Israel and Iran could disrupt crude oil shipments through the Strait of Hormuz, one of the world's most critical oil chokepoints.
Analysts warn that an Iranian blockade of the narrow waterway connecting the Persian Gulf to the Arabian Sea could send oil prices soaring above $100 per barrel. According to Warren Patterson, head of commodities strategy at ING, such a scenario would have a profound impact on the oil market, with prices potentially climbing to new all-time highs, surpassing the 2008 record of $150 per barrel.
The situation remains delicate, with energy experts estimating that the hydrocarbon market could deteriorate significantly, causing crude prices to skyrocket to as high as $350 per barrel. "So if worst came to worst and the Strait of Hormuz was closed for a month or more then Brent crude would likely spike to USD 350/b, the world economy would crater and the oil price would fall back to below USD 200/b again over some time," Bjarne Schieldrop, chief analyst commodities at Sweden's SEB bank, said.
Despite these alarming predictions, many market experts remain cautiously optimistic and see the likelihood of a full-scale blockade as low for the time being. Any traffic chaos in the strait, through which 21% of the world's daily oil consumption passes, could be disastrous not only for crude prices but also for global gas markets. After all, this waterway is also a key transit route for Qatari liquefied natural gas.
The Strait of Hormuz remains the world’s most important oil chokepoint, serving as a vital artery for Middle East oil exports to Asia. The region's largest producers, including Iran, rely heavily on this route. While both Saudi Arabia and the UAE have alternative pipelines that can bypass the strait, they offer limited relief. In the event of a supply shock, the US Energy Information Administration estimates that around 3.5 million barrels per day could be diverted through these pipelines, but that would not be enough to offset even a single day of a potential blockade.
For now, the oil market is pricing in little chance of such an extreme disruption, deeming it unreasonable. However, analysts caution that even minor interruptions could have severe consequences for energy markets. A significant disruption to the flows in the Strait of Hormuz would endanger 14 million barrels of daily oil exports from the Middle East, forcing Saudi Arabia and the UAE to tap into their reserve capacities.
However, while tensions in the region continue to rise, many remain skeptical that the conflict will escalate to the point of a full-scale blockade of the Strait of Hormuz.
