The recent Israeli strike on Iran has drawn significant attention to the Strait of Hormuz, the world’s most critical energy chokepoint, as concerns mount that crude oil prices could soar to between USD 95 and USD 110 per barrel if Tehran retaliates by disrupting oil supply. A report from Equirus Securities highlights that Iran, with its production of approximately 3.3 million barrels per day—around 3% of global supply—sits at the center of escalating tensions in the region.
The report outlines a potential scenario where, assuming a 3 to 5 percent increase in oil prices for every 1 percent supply shock, a disruption of Iranian exports could lead to a price surge of 9 to 15 percent. This means that starting from a base price of USD 70 per barrel, the oil prices could rise by roughly USD 6 to 11, pushing them toward USD 76 to 81 based solely on a direct loss of Iranian supply.
However, the report cautions that markets may not respond to conflicts in a straightforward manner. If tensions escalate to the point where shipping through the Strait of Hormuz is threatened, the resulting geopolitical premium could be significant, ranging from USD 20 to 40 per barrel. This would create a potential for oil prices to reach or exceed USD 95 to USD 110.
Notably, crude oil prices have already risen around 10 percent since the United States began deploying military forces in the Middle East, driven by concerns over geopolitical risks. The Strait of Hormuz is crucial as it facilitates a large proportion of global seaborne oil and liquefied natural gas trade, marking its strategic importance in any conflicts involving Iran.
A report from Crisis Group indicates that Tehran has several tactical options that do not involve an outright closure of the Strait. These could include intensifying harassment of tankers, imposing temporary navigational restrictions during military exercises, conducting drone overflights, and boarding incidents to increase insurance and freight costs without fully blocking the passage. Iran might implement slow or sporadic traffic reductions as a means to signal to the market without completely halting its own exports.
Equirus notes that oil markets tend to incorporate a geopolitical premium during the initial stages of heightened tensions, typically adjusting as trade routes are modified and supply fundamentals take precedence. Despite the uncertainty, the global focus remains on navigating these developments to ensure stability in energy markets.