The Hormuz Chokepoint: Oil Markets in Crisis

The Crisis at a Glance

The closure of the Strait of HormuzA narrow shipping lane between Iran and Oman, about 33km wide at its narrowest point. Roughly 20% of the world’s oil passes through it — making it the single most important energy chokepoint on Earth. following the outbreak of the US-Israel air war against Iran on 28 February 2026 has triggered the most severe oil supply disruption in the history of the global energy market.

Approximately 20 million barrels per day“mb/d” — the standard industry unit for measuring oil flow. For context, global consumption is roughly 100 mb/d, so 20 mb/d equals about 20% of the world’s entire daily oil use. of crude oil and petroleum products — roughly one-fifth of global consumption — has been choked off from the market since Iranian forces declared the strait closed on 4 March. Brent crudeThe global benchmark price for oil, named after a North Sea oilfield. When news reports say “oil prices,” they usually mean Brent. surged from approximately $72/bbl“bbl” = one barrel of oil = 159 litres (42 US gallons). It’s the universal unit oil is priced in. pre-conflict to a peak above $144/bbl in the physical (dated BrentThe price of actual physical oil cargoes being delivered right now, as opposed to futures contracts. It’s the purest signal of real-world scarcity.) market in mid-March. As of 13 April, Brent trades near $102/bbl following a temporary ceasefire on 8 April that has since partially unravelled.

The International Energy Agency (IEA)A Paris-based inter-governmental organisation set up after the 1973 oil crisis. It advises 30+ member countries on energy policy and manages coordinated oil stockpile releases in emergencies. has characterised this as the largest supply disruption in its 50-year history, prompting a record coordinated release of 400 million barrels from strategic petroleum reserves across more than 30 nations. But the scale of the disruption dwarfs the response — and the confluence of this supply shock with pre-existing tariff-driven inflation, OPEC+The Organization of the Petroleum Exporting Countries + 10 allies (including Russia). It’s the cartel that coordinates production levels among major oil-exporting nations to manage global supply — and therefore prices. production discipline, and structural damage to Qatar’s LNGLiquefied Natural Gas — natural gas cooled to -162°C until it becomes liquid, shrinking its volume 600x so it can be shipped by tanker. Qatar is the world’s largest LNG exporter. export capacity creates an energy environment not seen since the 1973 oil embargo.

Conflict Timeline

The current crisis has its roots in the failure of the Geneva nuclear negotiations and the prior 12-day air conflict between the US-Israel coalition and Iran in 2025. Tensions escalated sharply in early 2026:

The Supply Disruption: Scale and Scope

The Strait of Hormuz is the world’s most critical energy chokepoint. Before the crisis, approximately 20 mb/d of crude oil and petroleum products transited the strait daily — roughly 20% of global consumption. The IEA has called this the largest supply disruption in the history of the world oil market, exceeding both the 1973 Arab oil embargo and the 1979 Iranian Revolution in absolute volume terms.

The disruption extends well beyond crude oil. Approximately 20% of the world’s LNG supply — some 110 billion cubic metres“bcm” — the standard unit for measuring large natural gas volumes. 110 bcm is roughly enough gas to meet 80% of the UK’s annual consumption. of gas, primarily originating from Qatar — is effectively stranded. Dutch TTFTitle Transfer Facility — the benchmark European natural gas price, based at a virtual hub in the Netherlands. It’s the European equivalent of Brent for oil. gas benchmarks nearly doubled to over EUR 60/MWhMegawatt-hour — the unit used for pricing European gas. EUR 60/MWh is roughly 4-5x the long-term average level before the 2022 energy crisis. by mid-March, and Asian LNG spot prices surged more than 140% to $25.40/MMBtuMillion British Thermal Units — the unit used to price LNG in Asia. For context, US domestic natural gas typically trades at $2-4/MMBtu..

The destruction of capacity at Ras Laffan is a multi-year problem. Iranian strikes knocked out roughly 17% of Qatar’s LNG export capacity — approximately 12.8 million tonnes per annum — causing an estimated $20 billion in annual revenue losses. Critically, repairs will sideline this capacity for an estimated 3-5 years, meaning that even a full resolution of the Hormuz crisis will not restore Qatar’s LNG exports to pre-war levels.

Bypass Infrastructure: Necessary but Insufficient

Only Saudi Arabia and the UAE operate crude pipelines capable of bypassing the Strait of Hormuz. Within hours of the crisis escalation, Saudi Aramco began rerouting crude through its East-West pipeline system. But the structural reality is sobering: the world’s entire Hormuz bypass capacity covers barely a quarter of normal strait flows.

Saudi Arabia’s East-West pipeline network (Petroline) connects Abqaiq on the oil-rich eastern coast to the Red Sea port of Yanbu — roughly 750 miles. An estimated 3-5 mb/d of spare capacity exists. The UAE’s Abu Dhabi Crude Oil Pipeline (ADCOP) connects inland Habshan fields to the port of Fujairah on the Gulf of Oman, outside the strait, with a total capacity of roughly 1.8 mb/d.

Iraq’s IPSA pipeline to the Red Sea, mothballed since the 1990s Gulf War, has been discussed as a potential reactivation candidate but would require months of rehabilitation. The structural reality remains: the global energy system has no substitute for an open Strait of Hormuz.

Oil Price Action

Oil has surged approximately 42% from its pre-conflict level of ~$72/bbl. The price action has been extraordinary in both speed and magnitude — Brent rose 70% in just 26 trading days from the start of the conflict, a faster pace than the 2022 Russia-Ukraine energy shock.

The physical market has been even more extreme. Dated Brent — the benchmark for actual cargoes — reached $144/bbl in mid-March, a level not seen in real terms since the 1979 oil shock. As one analyst noted, this was not just a price record but the physical market signalling that real barrels were becoming genuinely scarce.

The forward curve remains in steep backwardationWhen near-term oil prices are HIGHER than prices for delivery in future months. It’s a classic sign of physical scarcity today — buyers are paying a premium to get barrels immediately. The opposite is “contango” (future prices higher than spot), which signals oversupply., with the 6-month spread exceeding $15/bbl — a structural signal of acute near-term tightness. The ceasefire announcement on 8 April triggered a 13% intraday selloff, but prices rebounded sharply within 24 hours as the agreement’s fragility became clear. The 12 April escalation pushed WTIWest Texas Intermediate — the US benchmark for oil prices, named after oil produced in Texas. It typically trades at a slight discount to Brent because it’s landlocked (harder to export). above $103/bbl.

The Macro Backdrop: A Perfect Storm

The oil shock arrives at a particularly challenging moment for the global economy. The confluence of the Hormuz disruption with the Trump administration’s sweeping tariff regime creates what can only be described as a twin supply-side shock — simultaneously inflationary and growth-destructive.

The Inflation Problem

US CPIConsumer Price Index — the main official measure of inflation, tracking the price of a representative basket of goods and services. When people say “inflation is X%,” they usually mean the year-on-year change in CPI. data released on 10 April showed gasoline prices surged 21.2% month-on-month in March — the largest monthly increase since 1967. Gas prices are projected to be 60% higher in 2026 than in 2024. Federal ReserveThe US central bank — sets interest rates and manages the money supply. Its main job is balancing inflation (raise rates to cool prices) against employment (cut rates to boost jobs). Chair Jerome Powell has attributed elevated readings to goods-sector inflation driven by both tariffs and energy costs.

The Tariff Compounding Effect

The Trump tariffs represent the largest US tax increase as a percentage of GDP since 1993, averaging an estimated $1,500 additional burden per household in 2026. JPMorgan estimates that 80% of tariff costs are currently being passed through to consumers. Specific energy-related tariffs include a 25% secondary tariff on countries purchasing Iranian oil (announced January 2026) and a 25% tariff on Indian imports linked to Russian oil purchases.

OPEC+ and the Supply Response

OPEC+ enters this crisis with an unusually deep stack of production cuts still in place. The group’s total restrained capacity sits at approximately 6.6 mb/d across three layers of cuts:

Saudi Arabia and Russia jointly announced an extension of voluntary cuts of 1.24 mb/d through December 2026. The UAE, Iraq, Kazakhstan, and Oman are implementing compensation cuts totalling 833 kb/d. Critically, these cuts were designed as a floor-management tool — not as a response to a supply crisis of this magnitude.

The next OPEC+ ministerial meeting on 7 June will be pivotal. The group faces a strategic dilemma: unwind cuts to fill the gap (risking oversupply if the strait reopens) or maintain discipline (risking demand destruction and political pressure if prices remain elevated). Saudi Arabia, which holds the bulk of deployable spare capacity, is widely expected to increase output if the strait remains closed through May.

Strategic Reserves: The Last Line of Defence

The 400 million barrel coordinated SPR release — the largest in the IEA’s history — covers approximately 20 days of disrupted supply at the current rate. The US contribution of 172 million barrels will bring the SPR to its lowest level since the mid-1990s. The release provides a critical bridge but is explicitly a time-buying exercise, not a structural solution.

Price Outlook and Scenario Analysis

Goldman Sachs has revised its full-year Brent average to $85/bbl (from a pre-war $53), with a Q4 base case of $71/bbl. Under a risk scenario where disruptions persist for two months, Goldman sees Q4 Brent at $93/bbl. The bank has flagged a peak scenario of $135/bbl if the market needs to force demand destruction over a six-month disruption.

JPMorgan has issued a starker warning, suggesting Brent could overshoot toward $150/bbl if the strait remains effectively shut into mid-May. On the downside, a rapid and credible de-escalation could trigger a violent selloff — the IEA’s projection of 3.8 mb/d of implied post-disruption oversupply suggests the market could swing from scarcity pricing to glut pricing faster than most expect.

Investment Implications Across the Energy Sector

The crisis has created significant divergence across energy sub-sectors. Oil has surged 70% in just 26 trading days — a faster pace than the 2022 Russia-Ukraine shock.

Upstream Producers: Direct Beneficiaries

UpstreamThe “front end” of the oil industry — companies that find and pump oil out of the ground. “Downstream” is the back end (refineries, petrol stations). “Midstream” is everything between (pipelines, storage, shipping). producers and integrated majors are the clearest winners. ExxonMobil estimates higher prices have boosted revenues by more than $2 billion. Chevron shares trade above $210, up 38% YTDYear-to-date — the percentage change from 1 January to today. A YTD return of 38% means the stock is up 38% since the start of the year.. Occidental Petroleum, with direct Permian Basin and MENAMiddle East and North Africa — a common shorthand for the region stretching from Morocco to Iran. Often used in oil and gas industry reporting. exposure, has surged 49%. US shale producers have seen a wave of equity issuance as companies capitalise on elevated valuations.

Refiners and Midstream: Crack Spread Expansion

Downstream operators benefit from crack spreadThe profit margin a refinery earns by turning one barrel of crude oil into refined products (petrol, diesel, jet fuel). When crude prices rise faster than fuel prices, crack spreads shrink. When fuel prices rise faster, they expand — as they have now. expansion. Phillips 66 has seen worldwide realised refining margins expand from $6.08/bbl in Q4 2024 to $12.48/bbl in Q4 2025, with Q1 2026 expected to show further significant expansion. Midstream operators benefit from increased throughput as Saudi and UAE bypass infrastructure runs at maximum capacity.

When High Prices Become Destructive

High oil prices are good for oil companies — until they’re not. Sustained triple-digit crude risks triggering demand destructionWhen prices get so high that buyers simply stop buying — driving less, skipping flights, switching to electric vehicles, or shutting down factories. It’s the market’s self-correcting mechanism, but it’s painful because it usually coincides with recession. that ultimately undermines the bull case. Airlines, petrochemicals, and transport-heavy industries face severe margin compression. A sharp reversal could also catch leveraged producers offside, particularly those hedgedHedging means locking in a future sale price today (using derivatives) to protect against price swings. A producer who hedged at $60/bbl can’t capture the upside now that oil is at $100 — their profits are capped at $60. at lower levels.

Key Risk Factors

Conclusion: What to Watch Next

The 2026 Strait of Hormuz crisis represents a generational disruption to the global energy system. The closure of the world’s most critical chokepoint has removed approximately 20 mb/d from the market, triggered the largest coordinated strategic reserve release in history, and pushed physical crude prices to levels not seen since the 1979 oil shock.

Our base case is that Brent averages $85/bbl for full-year 2026, with significant upside risk if the Hormuz closure persists beyond mid-May. We assign a 35% probability to a bull scenario averaging $100-110/bbl and a 10% probability to a tail-risk scenario above $120/bbl. A rapid resolution could see prices revert toward $65-70/bbl, though we consider this the least likely outcome given the depth of the military engagement.

The four variables that will determine the path from here:

The energy sector remains the clearest beneficiary of the current environment. We favour upstream producers with low-cost, diversified asset bases. But the range of outcomes is exceptionally wide — and position sizing should reflect the risk of a sharp reversal if the geopolitical picture improves faster than the market expects.

Sources: International Energy Agency (IEA) Oil Market Report — March 2026 | US Energy Information Administration (EIA) Short-Term Energy Outlook — April 2026 | Goldman Sachs Research | JPMorgan Global Research | Morgan Stanley | Dallas Federal Reserve | OPEC Secretariat | CNBC | Al Jazeera | Kpler | CSIS | S&P Global | Wood Mackenzie | San Francisco Fed | Chatham House | World Oil

Disclaimer: This report is a thematic research publication produced by Cashu Research, a division of Cashu Technologies Pty Ltd. The information contained herein is general in nature and does not constitute personal financial advice. It has been prepared without reference to your objectives, financial situation, or needs. Forward-looking statements, estimates, and projections are subject to risks and uncertainties that could cause actual results to differ materially. Cashu Research, its affiliates, directors, and employees may hold positions in securities or commodities discussed in this report.