LONDON/HOUSTON/SINGAPORE, Mar 2: Higher oil and gas prices are certain as the closure of the Strait of Hormuz threatens to disrupt 15% of global oil supply and 20% of global LNG supply, with oil prices potentially exceeding $100/bbl if tanker flows are not quickly restored, according to Wood Mackenzie. Following US and Israeli attacks on Iranian government, military and nuclear facilities, Iran warned shipping away from the waterway and insurers withdrew coverage, effectively halting tanker traffic.
The disruption creates a dual supply shock: not only are current exports through the Strait halted, but OPEC+ additional volumes and ultimately most of OPEC’s spare capacity—typically a key lever for balancing the global oil market—are inaccessible while the waterway remains closed.
“The key question is when do vessels re-establish export flows,” said Alan Gelder, SVP of Refining, Chemicals and Oil Markets at Wood Mackenzie. “No doubt, tanker rates and insurance will increase dramatically, but these costs would only be a small part of the oil price impact associated with a curtailment of oil flows if they last for more than a few days.”
Given the uncertainty around events, it is plausible that it takes a few weeks for export flows to re-establish themselves in the most optimistic scenario (in which the Iranian regime elects to co-operate with the US), Gelder added.
“During that time, oil prices are heavily risked to the upside,” Gelder said. “The most recent comparison is during the early days of the Russia/Ukraine conflict, when the fear of loss of Russian supplies drove the oil price to over US$125/bbl.”
In the current scenario, oil prices over US$100/bbl are possible if transit flows are not re-established quickly, according to Gelder.
OPEC+ production response
The group of eight OPEC+ countries responsible for voluntary production cuts – Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman – agreed on 1 March to resume unwinding the April 2023 1.65 million b/d cut. They will increase production by 206,000 b/d in April and meet again on 5 April to assess next steps.
“The OPEC+ decision does not come as a surprise, due to the uncertainty surrounding the US-Iran tensions, and that the market for non-sanctioned crudes is tight,” said Gelder. “There is, however, a risk that the OPEC+ decision is moot if flows do not resume through the Strait of Hormuz.”
While there are potential alternative supply routes available to Middle East producers—including Saudi Arabia’s East-West pipeline to the Red Sea and additional Iraqi volumes via the Mediterranean—no alternatives can fully compensate for the loss of exports that transit the Strait of Hormuz. Strategic stock releases by IEA member countries could provide some relief, but IEA members account for less than half of global oil demand.
Gas market implications
A halt in LNG flows through the Strait of Hormuz would be equally disruptive for global gas and LNG markets, according to Wood Mackenzie. Around 81 Mt (110 bcm) of LNG transited the Strait in 2025—primarily from Qatar—accounting for nearly 20% of global LNG supply.
“Disruptions to LNG flows would reignite competition between Asia and Europe for available cargoes, particularly at a time when European storage levels are below seasonal norms and around 10% lower than at the same point last year, following a severe cold spell in January,” said Massimo Di Odoardo, Vice President, Gas and LNG Research at Wood Mackenzie. “With approximately 1.5 Mt (2.2 bcm) of LNG exports at risk for each week that flows through the Strait of Hormuz are halted, both Asian and European markets would need to draw more heavily on existing storage and would increase the need for restocking over the summer. This would tighten market conditions well beyond the eventual resumption of trade through the Strait.”
Precautionary closures of the Leviathan and Karish gas fields in Israel—which supplied more than 10 bcm to Egypt last year—could add further pressure, as Egypt would likely increase LNG imports to offset lost volumes. Potential disruptions to gas exports from Iran to Turkey, which accounted for more than 7 bcm in 2025, could compound the supply strain.
A halt in LNG flows through the Strait of Hormuz would be comparable in scale to the curtailment of Russian gas supplies to Europe, which sent prices soaring to nearly US$100/mmbtu at their peak and averaging US$40/mmbtu in 2022, according to Di Odoardo.
“This time, however, the reaction is unlikely to be as extreme,” added Di Odoardo. “Unlike the prolonged disruption of Russian pipeline flows, a blockage in the Strait could be viewed as temporary, tempering the upside. Still, Monday will see a dramatic price jump at market opening, and any signal that disruptions could drag on would add further fuel to the rally.”
Looking forward
“The nearest historical analogue in our view is the Middle East oil embargo of the 1970s, which increased oil prices by 300 percent to around US$12/bbl in 1974,” said Gelder. “That is only US$90/bbl in 2026 terms. Eclipsing this in today’s market concerned about significant losses of supply seems very achievable.
“The global economy is now far less oil intensive than 50 years ago. The shock at the time of the oil embargo was the pace and scale of the price increase. Oil prices would need to reach well over US$200/bbl to exert a similar level of shock to today’s global economy.”
