The global energy landscape has been dramatically altered in 2026, with the Strait of Hormuz emerging as a critical flashpoint. The conflict in Iran has blocked this vital passage, disrupting shipments from several OPEC countries and sending oil prices on a volatile rollercoaster.
In January, the market remained relatively stable, with Brent and West Texas Intermediate (WTI) crude prices hovering around US$60.90 and US$57.72respectively. However, mounting tensions in the Middle East and a weak US dollar began to push prices higher by mid-February. By February 25, Brent had surged to US$70.20marking a 15.27 percent increase from January. Similarly, WTI rose 12.87 percent to reach US$65.15.
The Strait of Hormuz: A Critical Chokepoint
The outbreak of war in Iran on February 28 sent shockwaves through the energy sector. The precarious state of the Strait of Hormuz and drone attacks on oil and gas infrastructure propelled prices to near four-year highs. On March 9, Brent topped US$117.27 and WTI hit US$115.68representing significant jumps from earlier in the year.
Richard Tullisa natural resource analyst at Water Tower Researchdescribed the price volatility as extraordinary. He noted that the market is moving on any latest news or rumorswith headlines driving price action more than fundamentals. The Strait of Hormuzonce a passage for over 100 vessels per day, is now restricted to a handful of shipments, many tied to Iran.
The implications of this bottleneck are profound. Roughly 20 million barrels per day of petroleum products are effectively stranded, pushing Middle Eastern storage toward capacity and forcing oil production curtailments across key producers, including Saudi ArabiaIraqand the United Arab Emirates.
The Impact on Global Equities and Energy Infrastructure
The surge in oil prices has reverberated far beyond the energy complex, triggering broad selloffs in global equities. Despite oil’s declining share of global GDP, its influence remains deeply embedded in economic activity. Transportation, agriculture, manufacturing, and petrochemicals all depend heavily on energy inputs, meaning price shocks cascade quickly through the system.
Tullis noted that even a US$10 increase in oil can shave one to two tenths of a percentage point off GDP. The magnitude of recent moves, at times US$40 to US$50raises the stakes considerably. If sustained, such increases could materially weigh on global growth expectations, explaining the sharp reaction in equities.
Within the energy sector itself, a divergence has emerged. While crude prices have surged as much as 40 to 50 percent since late February, energy equities have lagged. This disconnect stems from the futures curve, where longer-dated prices have not risen as sharply as front-month contracts. However, as the conflict drags on, longer-dated futures are likely to move higher, raising the prospect of a catch-up trade in energy equities.
The Future of Oil and Gas Prices
Looking ahead, two indicators stand out: the status of the Strait of Hormuz and the extent of damage to regional energy infrastructure. Even a partial reopening of the strait could ease pressures, while sustained or escalating infrastructure damage would tighten supply further and extend the current rally.
Ajay Parmardirector of energy and refining news at ICISemphasized that the duration of the Strait of Hormuz outage, not just its severity, will ultimately determine how deeply the market tightens. In a short-lived conflict lasting roughly four to five weeks, he expects crude to hold above US$100supported by an already significant supply shock.
As much as 8 million to 9 million barrels per day has been shut in across the Middle Eastwith storage capacity effectively maxed out in key producing nations. Even with pipeline bypasses in Saudi Arabia and the United Arab Emirates operating at full capacity, up to 10 million barrels per day could remain offline, an extraordinary figure by any historical standard.
Strategic reserve releases offer only partial relief. Parmar estimates that coordinated releases could add roughly 3.5 million barrels per daya meaningful figure but still well short of offsetting Middle Eastern losses. Combined with potential flows from previously restricted sources, these measures may cap extreme price spikes but are unlikely to fully rebalance the market.
The longer the disruption drags on, the more structural risks begin to emerge. Governments may prioritize domestic supply, raising the specter of resource nationalism in an otherwise globalized oil market. Early signs are already visible, with some import-dependent nations moving to restrict exports of refined products. In a prolonged crisis, such policies could further fragment global trade flows and amplify volatility.
Natural gas prices also rallied in late January from US$3.36 per million British thermal units to US$5.03buoyed by Winter Storm Fernwhich sent heating demand soaring and triggered production freeze-offs across key US basins. However, the rally proved fleeting as unseasonably mild temperatures across the Eastern US erased the weather premium.
Andreas Schröderhead of gas at ICISpointed out that today’s crisis differs from past shocks in one key respect: its geographic center of gravity. Where Europe was at the epicenter of the 2026 energy crisis following Russia’s invasion of Ukrainethe current disruption is more acutely felt in Asiawhich is heavily reliant on Middle Eastern energy flows.
Europe, meanwhile, has undergone a structural transformation. Roughly one-third of its gas demand is now met through LNG imports, with the majority sourced from the US. Direct exposure to Middle Eastern LNG has declined sharply over the past decade, reducing immediate vulnerability to disruptions in the Gulf. However, that insulation is far from complete.
Recent attacks on Qatar’s Ras Laffan industrial complex, considered a cornerstone of global LNG supply, underscore the market’s fragility. With damage affecting multiple liquefaction trains, Schröder warned of a potential permanent reduction of output lasting three to five years. Such a loss would reverberate across global gas markets, tightening supply and elevating price risks well beyond the current crisis window.
The Strait of Hormuz remains a critical chokepoint for LNG shipments, as well as crude. A sustained closure would constrain flows across both markets, compounding the impact of infrastructure damage and reinforcing upward pressure on prices.
Policy decisions are adding another layer of uncertainty. Europe’s recent move to relax gas storage targets may ease short-term pressure on utilities but carries significant downside risk. As Schröder cautioned, looser mandates could leave the region dangerously exposed heading into the next winter heating season, effectively shifting today’s risks into tomorrow’s volatility.
Looking ahead, the trajectory of the Strait of Hormuz will dictate price direction. The interplay between energy security, policy shifts, and demand evolution will define the next phase of the oil and gas cycle. For now, the market remains on edge, caught between geopolitical uncertainty and structural supply constraints, with little room for error.
