The Strait of Hormuz crisis: How has it affected global oil prices and supplies?

Unprecedented disruption to global oil supplies

Several leading energy market analysts have asserted that current oil prices do not fully reflect the massive disruption to global crude supplies following geopolitical tensions that have effectively closed the Strait of Hormuz, a vital oil shipping artery. At the Financial Times Global Commodities Summit in Lausanne, Saad Rahim, chief economist at a specialized commodities firm, revealed that the conflict has so far resulted in an estimated one billion barrels of lost supply, a figure that could rise to 1.5 billion barrels if the crisis persists.

Rahim added: “This level of loss seems to be something the market cannot actually absorb. Even if a peace agreement is reached, it will take a long time for flows to return to normal, creating a real disconnect between market perceptions and the reality on the ground at the moment.”.

The strategic importance of the Strait of Hormuz

The Strait of Hormuz is one of the world's most important waterways, if not the most important, with nearly one-fifth of the world's daily oil consumption passing through it. Connecting the Arabian Gulf to the Gulf of Oman, the strait is crucial for major oil-exporting countries such as Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, and Qatar to export the bulk of their production. Any disruption to navigation in this strait not only affects producing nations but also sends shockwaves through the entire global economy, which relies heavily on the stability of energy flows.

Impact of the crisis on the global economy and energy prices

Oil markets have experienced sharp fluctuations since the start of the crisis, with Brent crude futures surging to nearly $120 a barrel before falling back to around $95 on hopes for peace talks. This volatility reflects the uncertainty gripping investors. Continued high oil prices will inevitably lead to increased transportation and shipping costs, higher prices for manufactured goods, fueling inflation in energy-consuming nations like China, India, and the European Union, and threatening to push the global economy into recession.

Warnings of stockouts

For his part, Frederic Lasser, head of analysis at a commodities trading firm, warned that a further month of conflict could push oil markets to the “bottom of the tank,” a term referring to the depletion of available commercial stockpiles, signifying a genuine supply crisis. Similarly, Amrita Sen, co-founder and research director at a group, expressed her pessimism, stating that oil flows through the Strait of Hormuz may never return to pre-war levels. Sen predicted an additional loss of approximately 450 million barrels of refined products, such as gasoline and diesel, assuming the strait might reopen at only 50% of its capacity next month, further exacerbating the global energy crisis.