On Saturday 28 February, the US and Israel launched attacks against Iranian government, military and nuclear targets. The Iranian Supreme leader, Ayatollah Al-Khamenei, was killed on Saturday along with senior leaders of the Iranian Defence Council. The process of succession is now underway, but the attack represents an existential threat to the current Iranian political and military structure and its leadership. President Trump is advocating the Iranian people to “take over your government”.
Iran has retaliated with missile/drone strikes targeting Israel and US military bases across the GCC region. There have been civilian casualties in Iran and across the region and the US has also acknowledged military casualties and damaged infrastructure. The US has indicated it hopes for a swift resolution and negotiations are understood to be beginning with the Iranians, mediated by Oman. There is also a grave risk of that conflict escalates.
Attacks on or damage to energy infrastructure are limited so far. Kharg Island, the main export location for Iranian crude and condensate, was reportedly struck, but the specific target is understood to be its naval facility.
The Strait of Hormuz is a key maritime traffic route, and its closure presents a major risk of disruption to global oil and gas/LNG markets. Iran is reported to have warned shipping not to traverse the Strait of Hormuz. Tanker traffic through this waterway has effectively ceased for the time being, after insurance coverage was withdrawn over the weekend. There are also reports of vessels in the Strait being attacked, with the tanker Skylight on fire and its crew evacuated.
We analyse the implications for energy prices should flows of crude, refined oil products and LNG into global markets be disrupted and corporate exposure to the region.
Middle East conflict: oil market implications
The Strait of Hormuz is the artery through which about 15% of global oil supply flows, primarily crude and condensate, but also petrochemical feedstocks, jet fuel and diesel/gasoil. The loss of these exports to the global oil market will be significant; the key question is how long before vessels are free to re-establish export flows.
Even in the most optimistic scenario – one in which the Iranian regime elects to co-operate with the US – it is plausible that it still takes a few weeks for export flows to fully be re-established. During that time, oil prices are heavily risked to the upside. In the early days of the Russia/Ukraine conflict, the market’s fear of the potential loss of 3 million b/d of Russian exports drove the oil price from around US$80/bbl to over US$125/bbl before it became clear supplies were largely unimpaired.
In this conflict the stakes are higher still with 15 million b/d of Gulf crude and product exports under threat. Failure to quickly re-establish flows through the Strait of Hormuz could again drive prices well over US$100/bbl from Friday’s close under US$73/bbl (Brent).
Middle East producers have alternative egress routes that could partially mitigate a prolonged closure of the Strait of Hormuz. Saudi Arabia could increase exports via its East-West pipeline to the Red Sea which has 1 – 2 million b/d of spare capacity. Additional volumes can be supplied into the Mediterranean from Iraq.
Higher prices will incentivise upstream producers elsewhere to maximise output, by foregoing maintenance, pushing assets harder and accelerating activity. But it’s not a tap that can just be turned on. The US Lower 48, while price-sensitive, would take 6-to-12-months to add more than a few hundred thousand barrels per day. Even if all global supply response levers were pulled, an aggregate gain of maybe 1 million to 2 million b/d over a period of many months wouldn’t come close to compensating for the loss of exports that transit the Strait of Hormuz.
The primary route for countries to mitigate a sustained supply loss would be the release of strategic stocks of IEA/OECD member countries, which are equivalent to 90 days of imports. However, strategic stock releases during the early days of the Russia/Ukraine war did little to mitigate high prices, as IEA members account for less than half of global oil demand. Sustained releases of strategic stocks are unproven, which would shift the focus of the oil market to the pace and duration of a stock release and the demand-side response to high prices.
Coincidentally, OPEC+ met, as scheduled, on Sunday 1 March as the conflict raged. The group of eight OPEC+ countries responsible for voluntary production cuts – Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman – agreed to resume unwinding the April 2023 1.65 million b/d cut. The intention is to increase production by 206,000 b/d in April 2026. This decision is captured in our latest outlook given the uncertainty surrounding the US-Iran tensions, and that the oil market for “non-sanctioned” volumes is tight. However, the plan could be moot should the Strait of Hormuz remain closed, while much of the rest of OPEC spare capacity is located in Saudi Arabia, Kuwait and the UAE and also currently inaccessible.
Refining margins suffer when oil prices spike upwards on geopolitical events. US gasoline demand is one of the most price sensitive refined products, with higher prices being felt immediately by the US consumer. The Middle East is a key exporter of middle distillates (jet and diesel/gas oil) to global markets, particularly Europe. Lower demand for civilian aviation is unlikely to counter the supply loss of Middle East exports, so lifting the premium of jet and diesel to crude prices.
An oil price shock will hit the petrochemical sector hard, so weakening the value of feedstocks such as naphtha. Maritime freight will avoid the Red Sea, diverting around the Cape of Good Hope, increasing the demand for bunker fuel. Refining margins could well stabilise at higher levels as the remaining refining system needs to run harder, akin to the start of the Russia/Ukraine conflict, until oil demand weakens due to high absolute prices from the loss of Middle East export flows.
Gas/LNG market implications
A halt in LNG flows through the Strait of Hormuz would be just as disruptive for global gas and LNG markets as oil. Around 81 Mt (110 bcm) of LNG transited the Strait in 2025 – primarily from Qatar – accounting for nearly 20% of global LNG supply. While most of these volumes are destined for Asian markets, the repercussions would be felt worldwide.
Disruptions to LNG flows could dramatically tighten the global market and reignite competition between Asia and Europe for available cargoes. More than two-thirds of the way through the northern hemisphere winter, European storage levels are below seasonal norms and around 10% lower than at the same point last year, following a cold spell in January.
With additional LNG supply expected to exceed 35 Mt this year and Asian demand remaining relatively subdued, the market had appeared broadly balanced at current prices of just under US$11/mmbtu (€31/MWh). The loss of approximately 1.5 Mt (2.2 bcm) a week of LNG exports through the Strait of Hormuz would force Asian and European markets to draw more heavily on existing storage and would increase the need for restocking over the summer. The market would remain tight well beyond the resumption of trade via the Strait.
Precautionary closures of Israel’s Leviathan and Karish gas fields add further pressure to global gas and LNG markets. These fields are key suppliers to Egypt, whose gas imports from Israel where close to 10 bcm last year. With exports reportedly halted, Egypt is likely to look to increase LNG imports to offset lost volumes.
Gas exports from Iran to Türkiye could also be at risk, potentially prompting Turkish buyers to seek additional LNG cargoes. Pipeline exports accounted for more than 7 bcm in 2025, however the contract was already set to expire by mid-year, limiting the potential upside for LNG imports.
The impact of a halt in LNG flows through the Strait of Hormuz would be comparable in scale to the curtailment of Russian gas supplies to Europe four years ago. Then prices soared to nearly US$100/mmbtu at their peak (equivalent to almost US$600/bbl Brent) and averaged US$40/mmbtu in 2022. This time, however, the reaction will hardly be as extreme as the closure of the Strait of Hormuz is likely to be temporary.
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.
Corporates will take a longer-term perspective
The host nation NOCs of Saudi Arabia, the UAE, Iraq, Qatar, Kuwait and of course Iran are by far the most affected by an inability for their exports to pass the Strait of Hormuz. For international participants, their positions in the world’s biggest, most strategic and lowest cost resources are critical, as evidenced by the ongoing ramp-up of regional business development. The most exposed as a group are the Majors, for whom nearly 10% of their portfolio value, and 12% of production pass through the Strait.
Ultimately, the strategic importance the region will remain unchanged for most of these companies, as it is a key source of future supply, even if the outcome of the war is protracted. Most will have factored in the potential for disruption of some form. Stakeholders, however, may in the future attribute a slightly higher risk to it, depending on the duration of the conflict and how the dust settles.
What next?
The “regime decapitation” strategy deployed by the Trump administration in Venezuela at the start of the year has not been instantly replicated in Iran, despite the deaths of senior Iranian leaders. Iran’s response in the coming days will be critical to the impact on energy markets and the global economy. Iran’s declaration late on Sunday 1 March of “total war” on Israel and the United States does not bode well. The conflict is unlikely to end in a few days, with the Strait of Hormuz being a point of asymmetry that Iran can exploit to counter its military and economic weakness.
The nearest historical analogue in our view is the Middle East oil embargo of the 1970s. In 1974 oil prices jumped 300 percent to around US$12/bbl, equivalent to US$90/bbl in 2026 terms. With the very significant volumes of supply at risk this time around we’d expect to see that level eclipsed.
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.
However, a sustained conflict that significantly limits transit via the Strait of Hormuz, elevates oil and LNG prices and weakens an already fragile global economy presents a considerable political risk for the US. A sharp, negative reaction in global financial markets could prompt the Trump Administration to look for an off-ramp and deescalate.
Lastly, the conflict is a reminder that much of the world’s energy security still depends heavily on oil and LNG exports through the Strait of Hormuz. The prospect of the Middle East’s share of global oil supply rising from 29% today to over 35% by the 2040s will give pause for thought as importing countries assess future energy policy.
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