Oil could top USD 100 as Strait of Hormuz closure halts flows

New Delhi: Oil prices could exceed USD 100 per barrel if tanker traffic through the Strait of Hormuz is not swiftly restored, as the waterway's closure threatens to disrupt 15 per cent of global oil supply and 20 per cent of global LNG supply, consultancy Wood Mackenzie said.

Following US and Israeli attacks on Iranian government, military and nuclear facilities, Iran warned shipping away from the strait and insurers withdrew coverage, effectively halting tanker movements.

The disruption, Wood Mackenzie said, creates a dual supply shock. Current exports through the strait are suspended, while additional OPEC+ volumes and most of OPEC's spare capacity - typically used to balance the global oil market - are inaccessible as long as the waterway remains closed.

Global oil prices rose after at least three ships were attacked near the Strait of Hormuz. Brent crude was up more than 8 per cent at USD 78.72 a barrel, while US-traded oil was up by around 7.6 per cent at USD 72.20.

"The key question is when vessels re-establish export flows," said Alan Gelder, senior vice president of refining, chemicals and oil markets at Wood Mackenzie. While tanker rates and insurance costs are set to surge, he said those increases would represent only a fraction of the price impact if oil flows are curtailed for more than a few days.

In the most optimistic scenario, export flows could take weeks to resume, he added.

Oil prices are "heavily risked to the upside" during that period. Gelder cited the early stages of the Russia-Ukraine conflict, when fears over Russian supply losses drove prices above USD 125 per barrel.

"In the current scenario, oil prices above USD 100 per barrel are possible if transit flows are not re-established quickly," he said.

India imports 88 per cent of its crude oil needs and any rise in prices will swell its import bill as well as fuel inflation.

OPEC+ Production Response

Eight OPEC+ countries responsible for voluntary production cuts - Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman - agreed on March 1 to resume unwinding their April 2023 cut of 1.65 million barrels per day. Output will rise by 206,000 bpd in April, with a further review scheduled for April 5.

However, Gelder said the decision could prove moot if Hormuz flows remain suspended.

"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 alternative routes exist - including Saudi Arabia's East-West pipeline to the Red Sea and additional Iraqi exports via the Mediterranean - they cannot fully offset the loss of shipments through the strait.

Strategic stock releases by International Energy Agency members could offer limited relief, but those countries account for less than half of global oil demand.

Gas Market Implications

A halt in LNG flows through the Strait of Hormuz would also roil global gas markets. Around 81 million tonnes (110 billion cubic meters) of LNG transited the strait in 2025, primarily from Qatar, representing nearly 20 per cent of global supply.

"Disruptions to LNG flows would reignite competition between Asia and Europe for available cargoes," said Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie. European storage levels are below seasonal norms and about 10 per cent lower than a year earlier following a severe cold spell in January.

About 1.5 million tonnes (2.2 bcm) of LNG exports are at risk for each week that flows are halted, he said. Asian and European buyers would need to draw more heavily on storage and step up summer restocking, tightening market conditions beyond the eventual reopening of the strait.

Additional pressure could stem from precautionary closures of Israel's Leviathan and Karish gas fields, which supplied more than 10 bcm to Egypt last year, prompting Cairo to boost LNG imports. Potential disruptions to Iranian pipeline exports to Turkey, which exceeded 7 bcm in 2025, could further strain supply.

Di Odoardo said a prolonged LNG halt would be comparable in scale to the curtailment of Russian gas supplies to Europe, which drove prices to nearly USD 100 per million British thermal units at their peak and averaged USD 40 per mmbtu in 2022. However, he said the reaction may be less extreme if the Hormuz disruption is seen as temporary.

Historical Parallels

Gelder said the closest historical analogue is the 1970s Middle East oil embargo, which lifted prices by 300 per cent to around USD 12 per barrel in 1974 - roughly USD 90 a barrel in 2026 terms.

"Eclipsing this in today's market, concerned about significant losses of supply, seems very achievable," he said.

While the global economy is less oil-intensive than five decades ago, oil prices would need to exceed USD 200 per barrel to deliver a shock comparable to that of the 1970s embargo, Gelder added.