Iran war-hit oil prices will soon rise if Hormuz stays shut
The clock is ticking for the US-Israeli war in Iran. The emerging view from oil industry executives and analysts is that if the Strait of Hormuz is not reopened within approximately the next one to three weeks, the economic and market effects of the war could increase sharply. Even then, enough damage may have been done to keep energy and many other prices high for longer.
These risks are not clearly reflected in some widely followed markets, including stocks. Indicator Brent crude oil price. Temporary measures to soften the impact of the oil disruption have kept crude oil prices relatively low in the US and European markets. But analysts warn that if these measures lose their effectiveness by early to mid-April, there will be little the United States or other governments can do to prevent energy prices from rising dramatically.
Iran’s attack on civilian ships and energy infrastructure in the region caused traffic in the narrow Strait of Hormuz to come to a halt. Roughly 20 percent of global oil supply normally passes through the approximately 160-kilometer waterway bordering Iran. Some of the oil has been rerouted through pipelines, but they can only carry so much. The United States and others are extracting 400 million barrels of oil from strategic reserves — the largest release in history — and the United States has temporarily lifted sanctions on some Russian and Iranian oil to give the market breathing room.
Satellite image shows smoke rising from the UAE port of Fujairah in Fujairah, United Arab Emirates, on March 15, 2026, amid the US-Israeli conflict with Iran.
NASA’s Worldview | via Reuters
The White House said it believes the president’s military strategy will soon end the Iranian threat and allow price concerns to ease.
But everyone agrees that there is no substitute for reopening the strait. Oil industry executives have outlined the growing risk of disruption from the war in the past few days.
“There are very real, physical signs around the world of closing the Strait of Hormuz,” Chevron CEO Mike Wirth said Monday at S&P Global’s CERAWeek event in Houston. he said. Shell CEO Wael Sawan echoed him a few days later at the annual meeting of industry heavyweights. The disruptions that started in South Asia “moved into Southeast Asia, Northeast Asia and then Europe as we moved into April,” Sawan said Wednesday.
What was talked about at the conference was the difference between so-called paper and physical prices, said Ben Cahill, director of energy markets and policy at the Center for Energy and Environmental Systems Analysis at the University of Texas at Austin.
Paper prices and physical prices
Paper prices reflect trading in financial markets, and the headlines often discussed in the press are oil prices. These prices have generally remained lower than prices for physical delivery of oil, especially in Asia, which is the main buyer of crude oil from the Middle East.
Brent crude futures contract prices rose 36% from February 27, the last trading day before the start, to March 27, when it traded above $113 per barrel. But following physical deliveries from some sellers in the Middle East, the Dubai price rose 76% to $126, more than double the price of paper. This price has become particularly unstable lately.
One reason paper prices are low is that they have steadily fallen in response to the President’s proposals. Donald Trump said the war may end soon or tensions may ease. Traders call it “jawbone”.
“In that sense, it’s working, it’s preventing a bigger backlash in the paper market,” Cahill said of Trump’s rhetoric. “But it’s really hard to ignore the fact that the physical market is disrupted.”
This disruption is not limited to oil and its effects on US gas prices. Liquefied natural gas prices are also worrying. LNG prices in Japan and South Korea increased by 48%. The costs of jet fuel are rising, as are more esoteric commodities like helium. Without relief, these prices could continue to rise, driving up global inflation and eating away at growth.
market disruption
Markets have been deteriorating over the last few days. The S&P 500 rose half a percent on Tuesday, buoyed by optimism that Trump would delay his plan to attack Iran’s energy infrastructure, but was down 3.4 percent from Wednesday to Friday’s close. The yield on the 10-year Treasury bill followed a similar pattern. It rose by roughly half a point over the course of the war, to 4.4 percent; This reflects concerns about inflation and the possibility that the Fed may not be able to cut interest rates as it hopes.
The possibility of a physical supply shortage in the oil market seems to blunt the impact of this situation. Trump’s jawbone. Financial markets reflect the fact that Trump has often managed to avoid worst-case scenarios, including his attack on Iran’s nuclear program in June. Oil futures then rose but fell sharply as it became clear that the war would not spread.
Trump is now sending thousands of new soldiers to the region. He could use them to attack Iran’s Kharg Island oil export facility, cutting off a vital source of revenue for the regime and forcing the regime to accept a negotiated reopening of the strait. He may try to take back the Strait militarily. The regime may simply collapse, or any outcome that will restore the flow of energy may occur.
Futures markets reflect these relatively optimistic possibilities at play. But they may not be able to do this forever.
Geopolitical strategist Marko Papic, together with market consulting firm BCA Research, made a prediction on supply sources and their blockages. Papic estimates that for now until about April 19, the world is losing 4.5-5 million barrels of oil per day due to the war; This corresponds to approximately 5% of global supply. But “that number will double by mid-April, marking the largest loss of crude oil supply,” he writes in a research note this week.
According to Papic’s prediction, the world will hit the oil cliff in mid-April, because strategic oil reserves, as well as sanctions-free Russian and Iranian oil, will be depleted. There is no substitute for pumping oil from the ground and shipping it directly to customers.
But the oil industry’s ability to return to delivering its product is also being questioned. Middle Eastern producers don’t have enough storage for all the oil they pump but can’t ship, so they’ve had to pause production and temporarily shut down wells. It will take time to reverse this.
Kuwait Oil Company CEO Sheikh Nawaf al-Sabah told an energy conference that it could take three to four months to return to full production after the war ends.
If Trump gets his way, that end could come soon.
“The glints of light at the beginning of the tunnel are getting brighter and clearer,” a White House official said on condition of anonymity. The official countered the oil industry’s skepticism about the outlook.
“I think oil executives are not geopolitical geniuses,” the official said. The official said the administration is making progress militarily and still has more tools at its disposal to power the market.
“We are also seeing improvements as Russia takes steps to expand its exports to fill this gap, so there is still room to breathe here,” the official said.
This breathing room is real, but it seems to be diminishing rapidly. Every day that Iran is willing and able to threaten shipping in the Strait brings the world closer to serious economic damage.
