The fate of oil prices

The war has begun and the Middle East has ignited after Iran was targeted, triggering a response that expanded to include several Gulf states, most notably Saudi Arabia, Bahrain, Kuwait and the United Arab Emirates.

The Middle East remains the heart of global energy supplies. Saudi Arabia produces approximately 10 to 11 million barrels per day, accounting for nearly 13 percent of total global output, making it one of the largest suppliers to international markets.

Iran, meanwhile, produces between 3 and 4 million barrels per day, representing roughly 4 to 5 percent of global production. Yet Iran’s importance in global energy markets extends beyond production levels. Its highly sensitive strategic position overlooking the Strait of Hormuz places it at the center of a critical maritime corridor through which nearly 20 percent of global oil trade passes.

That reality is reflected in oil markets, which tend to rise whenever geopolitical tensions escalate in the Middle East, particularly involving Saudi Arabia and Iran, or when threats emerge to shipping through the Strait of Hormuz.

At the opening of markets this week, West Texas Intermediate crude surged more than 11 percent, reaching $75 per barrel for the first time since June 23, 2025. Natural gas prices climbed more than 6 percent.

The importance of the strait of Hormuz

The significance of the Strait of Hormuz extends far beyond oil prices. It serves as a central artery of global energy supply. An estimated 20 percent of global daily oil consumption passes through the strait, equivalent to between 17 and 20 million barrels per day.

It is also a key transit route for liquefied natural gas, accounting for approximately 20 percent of global LNG trade, most of it originating from Qatar. Qatar Energy announced on the third day of the escalation that it had halted production operations due to political tensions.

Any disruption in the Strait of Hormuz could temporarily block nearly one-fifth of global energy supplies.

The consequences would extend well beyond the countries directly involved in the conflict. Japan, which relies heavily on imported oil to sustain its economy, would face immediate pressure. China could find itself increasingly dependent on Russian oil, potentially heightening tensions with the United States amid sanctions and geopolitical sensitivities. Meanwhile, segments of Europe’s energy sector could position themselves as alternative suppliers in certain areas.

Oil price outlook if the war continues

Questions are mounting over the future of oil supplies as geopolitical tensions persist, placing energy markets in a state of heightened uncertainty over the possibility of a shock comparable to past crises.

Historical experience suggests that the scale of market impact depends primarily on two factors: the duration of tensions and the nature of the accompanying responses. Some analysts believe current developments may lead to a gradual increase in prices, which could evolve into a full-scale shock if supply disruptions are not contained or if the confrontation becomes prolonged and more widespread.

Market sensitivity has intensified because of the strategic importance of the Strait of Hormuz, prompting international institutions to price in potential maritime disruption scenarios.

According to analysts, a prolonged closure of the strait could push Brent crude prices to $125 per barrel. However, if tensions persist without a complete supply halt, prices may stabilize around $80 per barrel, particularly as several shipping companies suspend transit and insurers withdraw war-risk coverage.

Financial institutions differ in their projections of the potential price trajectory. Citigroup expects Brent to trade within a range of $80 to $90 per barrel over at least the coming week if uncertainty persists without a full supply interruption. Morgan Stanley has raised its second-quarter Brent forecast to $80 per barrel from a previous estimate of $62.50, reflecting a repricing of geopolitical risks.

JPMorgan noted that Middle Eastern oil production could continue for no more than 25 days in the event of a Strait of Hormuz closure, underscoring the pressure that could emerge on the supply side if disruptions persist. Nevertheless, this scenario supports prices remaining near $80 through the end of March, provided tensions do not escalate into a broader confrontation.

By contrast, if the Strait of Hormuz remains closed for an extended period, oil prices could exceed $100 per barrel if tanker flows do not resume quickly. Even with OPEC+ announcing production increases, additional supply and spare capacity may prove ineffective if the maritime passage remains blocked, given that most regional exports depend on this critical waterway.

The continuation of war and escalating geopolitical tensions would affect not only the directly involved countries but most global economies. A renewed rise in inflation would likely be only a matter of time, particularly as shipping insurance costs increase and war-risk coverage is withdrawn, placing additional pressure on global supply chains.

On the natural gas front, Qatar Energy announced a halt in liquefied natural gas production due to political unrest. Qatar Energy is the world’s largest LNG producer and the primary engine of Qatar’s economy, while Qatar ranks as the world’s second-largest LNG producer.

Goldman Sachs recently projected that LNG prices could rise to $25 if shipments through the Strait of Hormuz were suspended for a full month. For context, natural gas prices are currently trading around $3. The last time prices reached $10 was in August 2022, following Russia’s invasion of Ukraine.