Traffic through the Persian Gulf’s most critical energy route has effectively stalled as commercial vessels avoid the Strait of Hormuz amid the escalating conflict with Iran.
The disruption has already pushed global oil prices above $100 per barrel for the first time since the early phase of the war in Ukraine.
The crisis began affecting the region’s energy sector rapidly. In late February, Bijan Mossavar-Rahmani, chairman of the Norwegian oil company DNO, ordered the shutdown of the company’s oil fields in Iraq as a precaution after the United States and Israel launched attacks on Iran.
The move was one of the first signals that the conflict could quickly disrupt energy production across the region.
At the same time, tanker traffic through the Strait of Hormuz began to decline sharply. With shipping through the passage nearly halted, producers in the Gulf are being forced to cut output because oil cannot be transported to global markets.
JP Morgan analyst Natasha Kaneva described the situation as unprecedented.
– In the entire history of the strait, it has never been closed. For me this was not just the worst-case scenario — it was an unthinkable scenario, Kaneva told The Wall Street Journal.
If the strait remains closed through the end of the week, daily production in the region could drop by more than four million barrels per day, Kaneva estimates. By the end of March the decline could reach nine million barrels per day — close to ten percent of global demand.
Energy historian Daniel Yergin said the scale of the disruption could be extraordinary.
– This is clearly the largest daily disruption to oil production in world history. If it continues for weeks, the effects will ripple through the entire global economy, he said.
The shock is already visible on energy markets. U.S. oil futures rose 36 percent last week, the largest weekly increase since trading began in 1983. Liquefied natural gas prices have also surged after Qatar suspended production following drone attacks.
Although the United States is now a major energy producer, the impact of the disruption is global. Roughly one fifth of the world’s oil and liquefied natural gas normally passes through the Strait of Hormuz.
At its narrowest point, the strait is only about 34 kilometers wide, forming the most important shipping route for oil exports from the Persian Gulf. Western countries have spent billions of dollars over decades to secure the passage.
Energy markets have experienced similar shocks before. The Arab oil embargo of 1973 quadrupled prices within months and pushed many Western economies into recession. Iran’s 1979 revolution also sharply reduced the country’s oil production and sent prices soaring.
Analysts now warn that the crisis around the Strait of Hormuz could become the largest disruption in energy market history if the route does not reopen quickly.
