On February 28, 2026, the United States and Israel launched a military operation against Iran, targeting key leadership, nuclear sites, and military infrastructure. Below we assess the effects of the conflict on the oil price and supply/demand, discuss why it is critical for the oil market and global economy, look at possible resolution avenues and available mitigation instruments. We look at the historical parallels and companies that outperformed during the previous oil price shocks.
Strait of Hormuz closure, effects on oil supply/demand balance and alternative supplies. – The key risk for the global economy is the effective closure of the Strait of Hormuz and resulting economic consequences. The direct impact is the risk of continuity of oil and LNG supply to global markets. The Strait of Hormuz facilitates the daily transit of approximately 20 million barrels of crude oil and petroleum products, representing between 15% and 20% of total global consumption. The waterway processes 20% of the LNG trade, equating to approximately 81 million tonnes annually, predominantly sourced from Qatar. The secondary effect, but ultimately more important, is the impact of higher oil prices on inflation, inflation expectations and as a result on interest rates.
Transportation alternatives. – Around 20mbd are transported through the Strait. While there is limited spare capacity in alternative oil pipelines of up to 2.5mbd, there are no viable options to transport around 15-17mbd through other routes. Should the Strait remain closed for a prolonged period of time, the resulting deficit would have severe effects on the global economy.
Global spare capacity – The global production spare capacity is limited and is estimated to be around 4-6mbd, out of which around 3mbd is controlled by Saudi Arabia and UAE and offers no alternative to the Strait transportation problem. Russia has effectively no available spare capacity. US is the largest oil producer, but operates in a free market through independent producers. The high oil price will be an incentive to increase production, but US producers are not in a position to offset the immediate supply deficit.
| Country | Estimated capacity, mbd | Current production, mbd | Spare capacity, mbd |
|---|---|---|---|
| Saudi Arabia | 12.1 | 9.8 | 2.3 |
| UAE | 4.3 | 3.6 | 0.7 |
| Iraq | 4.8 | 4.4 | 0.4 |
| Kuwait | 2.8 | 2.5 | 0.3 |
| Kazakhstan | 1.8 | 1.5 | 0.3 |
| Russia | 9.4 | 9 | 0.4 |
Government reserves – US government controls Strategic Petroleum Reserve of around 415mb and China close to 1bn barrels, which could mitigate sharp short term deficits, however it is limited and won’t be enough in case of sustained Strait closure.
| Country | Estimated reserve mb | Average Daily Consumption mbd | Average Daily Production mbd |
|---|---|---|---|
| US | 415 | 20 | 21 |
| China | 1000 | 16.5 | 5.3 |
| Japan | 495 | 3.3 | 0 |
| Germany | 175 | 2 | 0.1 |
| Spain | 144 | 1.2 | 0 |
| India | 36 | 5.4 | 0.7 |
| South Korea | 100 | 2.6 | 0 |
Strait re-opening – Should hostilities continue, the US will have to secure the Strait militarily. It includes the destruction or degradation of thousands of naval mines, 25 submarines and thousands of coastal anti-ship cruise missiles and drones. This operation is militarily very challenging and time consuming, but remains a prerequisite for normalisation of insurance premiums and restoration of oil tankers movement.
Impact on oil price – depends on level of operational disruption and duration. The Brent oil price increased by around 17% so far, which is benign, assuming massive potential loss of supply. Several factors mitigate immediate further price surge. The current in-transit oil supply is around 400mb, which is enough for refineries to operate as normal till the end of March. Almost certain IEA reserve releases, which could mitigate very significant part of lost supply. Organic demand decline in high oil price environments from lower economic growth and weakness in oil demand prior to Iran conflict with weak economic conditions in China and 2.3mbd of supply surplus overall.
| % of oil cargoes blocked | Duration after start of blockade | Potential Brent price, on average | Comment |
|---|---|---|---|
| 100% | >4 weeks, resolution is probable in the near term | $100-120 | +60% from pre-crisis level, comparable with the shock after Russian invasion of Ukraine, assuming there is a visibility of a resolution. |
| 50% | >4 weeks, throughput is probable to increase soon | $80-100 | elevated prices, but pressure limited by partial supply through the Strait, reserves and expectations of supply increase |
| 25% | >weeks | <$80 | oversupply of 2.5mbd before the conflict and likely mitigating measures will decrease the risk premium |
| 80-100% | >6 weeks | >$140 | unprecedented, physical deficits, especially in Asia, active demand destruction, significant reduction of economic growth |
Historical parallels – Persian Gulf was affected by oil supply disruptions before. During the 1990-1991 Persian Gulf War the acute market disruption lasted 7 months. The invasion and embargo instantly removed 4.30 million barrels per day of combined Iraqi and Kuwaiti crude production from the global market, representing approximately 6.5% of total global supply at the time. WTI crude prices surged from an August 1990 baseline of $17.00 per barrel to a peak of $46.00 per barrel by mid-October 1990, an increase of 170.58%. Adjusted for 2026 inflation, this peak equates to approximately $110.00 per barrel.The crisis was resolved through international military intervention and a 2.50 million barrel per day authorized release from the IEA strategic reserves. Saudi Arabia simultaneously increased excess capacity production by 3.00 mbd. Prices went down to $20.00 per barrel by early 1991, fully erasing the war premium within 6 months.
In 1984 -1988 around 240 tankers were attacked by Iran and Iraq during their standoff. The sustained attacks forced physical rerouting, and a temporary reduction in exports from the Persian Gulf. This coincided with Saudi Arabia flooding the market with excess oil, so that after initial spike prices plummeted from $28 to $10. Shipping logistics was enforced via military intervention with US Navy escorts. Supply flow normalized despite ongoing hostilities due to sustained naval convoy protection.
In 2022 after Russian invasion of Ukraine the market lost around 1.5mbd of supply. Brent crude futures went up from $76 in December 2021 to above $130 in March 2022. The $100+ per barrel prices were neutralized by two primary mechanisms: the release of 182mb from IEA strategic reserves, and the re-routing of cargoes to China and India via shadow fleet. Prices mean-reverted to the $75 to $85 range by early 2023.
The key difference to the current situation is the absolute potential market deficit of around 15mbd, which is unprecedented and the fact that the majority of spare capacity of around 3.5mbd is also trapped behind the Strait of Hormuz. Additional challenge to military resolution is advancement of drones, smart mines and anti ship missiles, which is difficult to eliminate and which potentially diminish the effectiveness of naval escorts.
Sector impact
| Sector | Impact |
|---|---|
| Energy | Positive – direct margin expansion form elevated prices |
| Materials | Negative – increased costs for petroleum based feedstock, esp. chemicals and likely demand reduction |
| Industrials | Mainly negative – from higher raw materials and transportation costs. |
| Consumer discretionary | Negative – purchasing power going down from direct rise in energy costs and slow down of economic activity |
| Consumer staples | Positive – inelastic demand makes the sector a defensive one, though some margin erosion |
| Technology | Negative – indirectly from slower economy and higher interest rates, making funding more expensive and valuations compress due to higher denominator in the models |
| Financials | Negative – slower economic growth affects demand, increasing cost of risk reduces profitability, somewhat mitigated by expansion on margin |
| Real Estate | Mixed – slower economy and increasing cost of funding reduce demand, put pressure on leveraged balance sheets, but some defensive characteristics |
| Utilities | Mixed – depending on fuel type and regulatory environment for price setting |
| Health Care | Positive – defensive, inelastic demand |
| Communication Services | Mixed – from slower economy |
FX Effects
| FX pair | Comment |
|---|---|
| EURUSD | EU imports around 90% of energy requirements. Increased prices lead to increase in current account deficit and EUR depreciation pressure |
| USDJPY | Japan imports 100% of crude oil. Direct impact on trade deficit leading to weaker Yen. This effect should overweight “flight to safety” characteristics of Yen |
| GBPUSD | Downward pressure on GBP from higher import bill (25% of oil and 50% of gas imported) |
| AUDUSD | Mixed – Australia is importing oil, but is large LNG exporter. |
Commodity Impact
| Commodity | Comment |
|---|---|
| Natural Gas | Strait of Hormuz is export avenue for Qatar and UAE LNG, around 20% of global supply. Direct and immediate impact on prices in Europe and Asia. No spare capacity to offset and free cargoes to offset. |
| Gold | Positive, safe haven in times of global uncertainty, however pressure from stronger USD |
| Silver | Industrial use is around 60%, with energy around 20% in cost matrix. Mixed effect from likely lower economic activity, but upwards pressure from cost inflation. IN the short industrial properties overweight its positive correlation with gold. |
| Copper | High correlation to global economic activity. Demand should react negatively, due to slower economy. However impact of tech companies 700+bn CAPEX can distort traditional assumptions |
| Soft commodities | Positive for prices due to relaince on gas based fertilizers. Production cost increase results in higher prices. |
Investment themes for the significant disruption of oil transport through the Strait
Ex-MENA Energy – benefiting directly from margin expansion, and increased market share. It includes majors as we as smaller E&P’s as well as traders and operators of tankers
Defence companies – higher revenue from increased demand to replenish used up stocks and military gear capex. Cybersecurity and producers of innovative military gear will benefit as well
Agricultural sector – gas price hike affects directly fertilizer prices, putting inflationary pressure on the soft commodities. Companies that offer efficiency improvement solutions should benefit as well
Defensive sectors – sectors with inelastic and stable demand profit from capital re-allocation from more cyclical and growth sectors
Utilities and grid services – non-gas operated utilities should expand profitability, as gas is usually marginal cost producer. The infrastructure, interconnectivity upgrade companies.
For reference – top performers during initial 6 month of the Russian invasion of Ukraine (01.01.2022-30.06.2022)
S&P500
| Company | Sector | Return, % |
|---|---|---|
| Occidential Petroleum | Energy | 104 |
| Valero Energy | Energy | 44 |
| Hess Corp | Energy | 44 |
| ExxonMobil | Energy | 42 |
| Halliburton | Energy | 40 |
| Marathon Oil | Energy | 40 |
| APA Corp | Energy | 38 |
| Vertex | Health Care | 28 |
| Chevron | Energy | 25 |
| ConocoPhillips | Energy | 25 |
FTSE100
| Company | Sector | Return, % |
|---|---|---|
| BAE | Defense | 55 |
| Pearson | Consumer Discretionary | 53 |
| Glencore | Basic Materials | 24 |
| Shell | Energy | 22 |
| Imperial Brands | Consumer Staples | 18 |
| BP | Enerrgy | 15 |
| AstraZeeca | Health Care | 14 |
| Centrica | Utilities | 12 |
| AngloAmerican | Basic Materials | 11 |
| Vodafone | Telecom | 8 |
DAX40
| Company | Sector | Return, % |
|---|---|---|
| Bayer | Health Care | 33 |
| Deutsche Telekom | Telecom | 16 |
| RWE | Utilities | 15 |
| Beiersdorf | Consumer Staples | 8 |
| Hannover Re | Financials | 3 |
| E.ON | Utilities | 2 |
| Munich Re | Financials | 2 |
| Symrise | Basic Materials | 1 |
| Qiagen | Health Care | 1 |
| Deutsche Boerse | Financials | 0.5 |
CAC40
| Company | Sector | Return, % |
|---|---|---|
| Thales | Defense | 56 |
| TotalEnergies | Energy | 18 |
| Sanofi | Health Care | 9 |
| Carrefour | Consumer Staples | 8 |
| Orange | Consumer | 7 |
| Engie | Utilities | 6 |
| Danone | Consumer Staples | 4 |
| Pernod Ricard | Consumer Staples | 3 |
| Air Liquide | Basic Materials | 2 |
| Vinci | Industrials | 1 |
Indicators to watch
Joint War Committee (JWC) Additional Premium (AP) Hull Insurance Rates – currently above 1%, dropping rate would indicate improvement
Fujairah Bunker Fuel spot rate – Fujairah is in UAE in Gulf of Oman, not Persian Gulf. Falling spot prices would indicate fuel oil is flowing through the strait
flightradar24 – Reactivation and number of scheduled flights from UAE, Qatar – restarting airport operaiuons indicate decreasing military risks
marinetraffic.com – vessel activity in the Strait
SLP Alpha 