MW Here is the 'worst-case scenario' for oil and the Strait of Hormuz

By Myra P. Saefong

Oil climbed to its highest price since June on Monday, as conflict in the Middle East brings with it an inherent risk to the world's available crude supplies

There's a de facto closure of the Strait of Hormuz for much commercial traffic due to intense military tensions, says OPIS.

Oil climbed to its highest price since June on Monday as conflict in the Middle East brings with it an inherent risk to the world's available crude supplies.

At the center of those worries is the Strait of Hormuz, one of the most important maritime shipping routes in the world because it carries about one-fifth of the world's seaborne crude oil. It allows cargo ships to pass through the Persian Gulf, the Gulf of Oman and the Arabian Sea.

Read: The whole world is watching this critical energy chokepoint as Iran conflict enters more dangerous phase

"The potential impact on global oil supply and the world economy could be so significant that it is difficult to imagine a worst-case scenario - no tankers transiting the Strait of Hormuz - lasting more than a short while," said Jim Burkhard, vice president and global head of crude oil research at S&P Global Energy, in emailed commentary Monday.

The Strait of Hormuz is experiencing a "de facto closure for much commercial traffic due to intense military tensions," said Tracy Cui, director, global gas research at OPIS, which is a unit of Dow Jones, the publisher of MarketWatch.

'This is a supply shock with an uncertain timeline when the critical variable is duration.'Angie Gildea, KPMG

"This is a supply shock with an uncertain timeline when the critical variable is duration," Angie Gildea, KPMG U.S. energy strategy leader, told MarketWatch Monday. Any sustained disruption to the Strait of Hormuz "translates directly into a higher oil-price environment."

On Monday, U.S. and global benchmark oil rallied, with prices on track to settle at their highest since June. West Texas Intermediate crude for April delivery (CLJ26) (CL.1) climbed 6.2% to $71.19 a barrel on the New York Mercantile Exchange, while May Brent crude (BRNK26) (BRN00) added 6.8% to $77.80 on ICE Futures Europe.

There are "buffers" that can serve as temporary "stopgaps" to make up for the oil lost to an effective closure of the waterway.

Read: Iran conflict sparks talk of a return to $100-a-barrel oil and a Strait of Hormuz standstill

Around 20 million barrels per day of crude oil and petroleum products pass through the Strait every day, the equivalent of about 20% of global petroleum liquids consumption, according to the U.S. Energy Information Administration. That's roughly 15.5 million to 16 million barrels per day of crude oil and about 4 million barrels per day of refined products and natural-gas liquids, said Rebecca Babin, managing director at CIBC Private Wealth.

"If flows were meaningfully restricted for a sustained period, that represents a very significant portion of globally traded supply," she said.

Strategists led by Vikas Dwivedi at Macquarie believe the world can handle the Strait being shut in for one to two weeks, but the impact on oil prices would escalate "rapidly after the third week, and definitely after the fourth week" mainly because of "deliverability."

Other outlets cannot release barrels close to the rate that would be lost through the Strait, the Macquarie strategists said.

President Donald Trump on Monday said that the U.S. military campaign against Iran could last four to five weeks, or even longer.

Read: Trump leaves door open for extended U.S. campaign against Iran

Mitigating factors

The Strait is located in the Middle East - a region that's home to five of the world's 10 biggest producer states: Saudi Arabia, Iraq, the United Arab Emirates, Iran and Kuwait, according to the International Energy Agency.

Higher oil output from major oil producers could help. But even if more supply is on the market, "if it cannot pass through the Strait of Hormuz, it won't make much of a difference," said KPMG's Gildea.

A decision by major crude producers over the weekend to lift output by 206,000 barrels per day starting in April appeared to be largely shrugged off by the oil market. The group had been increasing their production quotas through most of last year, but paused those increases for the first quarter of 2026 due to concerns about a global supply surplus.

By agreeing to lift production, the eight members of the Organization of the Petroleum Exporting Countries and its allies that met virtually on Sunday showed that they are prepared to use spare capacity if needed, but are "not willing to open the taps aggressively at this stage," wrote Jorge Leon, senior vice president and head of geopolitical analysis at Rystad Energy, in a note Sunday.

OPEC+ still needs to manage spare capacity, of around 3.5 million barrels per day, "carefully" because it's a "critical buffer that cannot be deployed too quickly without reducing the group's ability to respond to a larger disruption," he said.

Other "workarounds" for a stoppage of maritime transit through the Strait of Hormuz are also very limited, said CIBC's Babin. The most notable would be Saudi Arabia's East-West pipeline, which allows crude to bypass Hormuz and reach the Red Sea.

It has spare capacity of roughly 3 million to 4 million barrels per day, she said. That can "alleviate some stress, but clearly cannot replace" the full volume that normally transits through the Strait. Also, keep in mind that "diversion routes are not entirely risk-free," she said, pointing out that the East-West pipeline has been targeted in prior regional conflicts.

Floating storage of oil, said Babin, referring to crude that's been in storage in tankers on the water, can provide some near-term supply flexibility, said Babin.

Strategic oil reserves, including the U.S. Strategic Petroleum Reserve, as well as commercial inventories held by the Organization for Economic Co-operation and Development, which stands at roughly 74 days of forward demand coverage, can provide an additional buffer that can be drawn upon in the short term, she said.

The bottom line, however, is that if Hormuz flows were materially constrained for an extended period, "replacing those barrels quickly would be difficult," Babin said.

"The issue becomes less about global production capacity and more about the ability to safely move oil, with shipping conditions and insurance markets playing an outsized role in determining how crude trades in the near term," she said.

-Myra P. Saefong

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March 02, 2026 14:58 ET (19:58 GMT)

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