Iranian situation ignites a "oil nightmare": If the Strait of Hormuz is cut off, oil prices could "break 100"！LNG may test historic high prices again

Cailian Press APP learned that last weekend’s U.S. attack on Iran has once again sparked market concerns over potential disruptions to oil transportation through the Strait of Hormuz. The current oil market is on high alert, fully prepared to prevent potential supply shocks. As geopolitical tensions continue to escalate, this previously considered “nightmare scenario” for the oil market is shifting from an abstract risk to a real pressure—parties are racing against time to take measures to mitigate possible supply disruptions.

Although analysts generally expect that oil prices will react instinctively when trading resumes in New York on Sunday night, the more critical issue is whether geopolitical tensions will escalate further, leading to sustained interruptions in Persian Gulf oil exports.

“At present, it seems we are facing a full-scale military conflict between the U.S. and Iran, which would be unprecedented, and the trajectory of the conflict is difficult to assess,” said Vandana Hari, CEO of energy research firm Vanda Insights.

Hari stated, “If the conflict lasts several days and Iran and its proxies retaliate forcefully, we could face the worst scenario for the oil market, including severe disruptions to Middle Eastern oil transportation”—unless the U.S. can preemptively disable Iran’s navy and armed forces and ensure the safe passage of oil tankers through the Strait of Hormuz.

Importance of the Strait of Hormuz

As tensions escalate, market focus has shifted back to the Strait of Hormuz; any disruption would have an immediate and disproportionate impact on global oil and liquefied natural gas flows.

Located between Oman and Iran, the strait is a critical global oil transportation route and a potential chokepoint. According to Kpler data, about 13 million barrels of crude oil pass through it daily in 2025, accounting for approximately 31% of all seaborne oil flows.

It connects major Persian Gulf oil producers such as Saudi Arabia, Iran, Iraq, and the United Arab Emirates with the Gulf of Oman and the Arabian Sea.

About one-fifth of the world’s oil and liquefied natural gas typically flows through the Strait of Hormuz daily. If shipping traffic through this chokepoint stalls, the cost and time required to restart the fleet—currently lingering near the waterway entrance—would be enormous. When might this be achieved?

Over the weekend, signals regarding the Strait of Hormuz were chaotic. The U.S. issued broad warnings to Middle Eastern shipping, with a major shipping company citing this as a reason to avoid the area; meanwhile, Iran appeared to begin broadcasting last Saturday evening announcing the closure of the strait.

On Sunday, a senior official stated that U.S. ships would not enter the Gulf, but Iranian Foreign Minister Abdollahian later said Iran has no intention of closing the Strait of Hormuz and has kept it open, while admitting that three oil tankers were attacked that day.

Currently, as companies await clarity on the regional security situation, oil tankers continue to gather outside the channel. Two insurance companies privately indicated that they expect significantly higher port docking fees at Persian Gulf ports.

Although the number of visible signals from ships’ transponders has decreased, a few vessels still seem to be passing through the Strait of Hormuz and have resumed broadcasting after leaving the strait.

As conflicts spread and the U.S. announced the establishment of a maritime security zone, shipowners and traders have proactively suspended operations.

Reports indicate that an officer from the EU naval task force “Aspides” said that merchant ships received very high frequency radio warnings from the Iranian Revolutionary Guard, stating that “no ships are allowed to pass through the Strait of Hormuz.”

The officer added that Tehran has not officially confirmed any instructions to close the waterway.

Worst-Case Scenario Analysis

Iran has repeatedly threatened to block this narrow passage in response to attacks on the Islamic Republic over the years.

Bob McNally, president of Rapidan Energy Group, has been warning clients for weeks that the probability of conflict is 75%. He said that given the world’s dependence on the production and transportation of oil and natural gas from the Hormuz region, the situation is “extremely serious.”

Industry insiders emphasize that the bigger issue is the duration. McNally stated that the extent of the surge in oil and LNG prices will depend on how long and how broadly the production and transportation disruptions in the Persian Gulf last.

Analysts point out that the potential scenarios have expanded from “limited Iranian oil export interruptions” to the extreme case of “full blockade of the Strait of Hormuz.” The core concern of global markets goes far beyond the loss of Iranian oil supplies—more severe is the risk that if this strategic shipping lane is further disrupted, it could trigger a systemic collapse of the global energy supply chain.

“Initial signs suggest that the scale of this attack on Iran is larger, and retaliation could escalate and involve multiple Gulf countries,” said Saul Kavonic, head of energy research at MST Marquee.

Kavonic noted that the market initially priced in a range of risks—from Iran losing up to 2 million barrels per day in exports, to attacks on regional infrastructure, or in an extreme scenario, a complete shutdown of the Strait of Hormuz.

“If the Iranian regime feels its survival is threatened, the possibility of attempting to block the Strait of Hormuz cannot be ruled out,” he said, adding that the U.S. and its allies might deploy military escort forces to protect navigation routes.

If Iran successfully blocks the strait, the consequences for the global oil market could be extremely severe.

“This could cause a situation three times worse than the Arab oil embargo of the 1970s and the Iranian Revolution, pushing oil prices into triple digits, while liquefied natural gas prices could test the 2022 record highs again,” Kavonic warned.

Market Buffers and Responses

The physical market does have some buffer capacity to mitigate this impact. Major Gulf oil exporters, including Saudi Arabia, had already significantly increased oil shipments in the weeks before the attacks; Saudi Arabia also has storage facilities outside the Persian Gulf and pipelines to the Red Sea, allowing some exports to be diverted.

Over the past year, global offshore oil inventories have surged sharply, indicating a surplus in supply, much of which comes from black market dealings involving Russia and Iran. OPEC+ has announced that its major members will modestly increase production in April; many countries, including the U.S. and China, the world’s two largest oil consumers, also hold strategic petroleum reserves that can be tapped if necessary.

However, a complete closure of the Strait of Hormuz would be devastating for the global oil market.

Sources say that refiners across Asia are trying to delay shipments of Persian Gulf cargoes, but no agreements have been confirmed yet.

Many analysts and traders expect the U.S. to take measures to restore traffic through the Strait of Hormuz.

Former President Donald Trump has repeatedly called for lower oil prices, and rising fuel prices would put greater pressure on the U.S. government to end the conflict quickly.

“A prolonged disruption of maritime traffic could force them to consider measures beyond air strikes, such as naval escort,” said Aaron Stein, director of the Foreign Policy Research Institute.

Speculative Risks and Final Assessments

Since the beginning of the year, many oil traders have heavily bet on conflict erupting. Some warn that the largest speculative long positions accumulated over the past two years mean that any upward movement at the open could face significant profit-taking.

However, all agree that this conflict is more serious than last year’s 12-day war, and the future of regional security remains highly uncertain.

“Iran’s retaliatory actions are more aggressive and broader in scope than ever before,” said Jorge Leon, head of geopolitical analysis at Rystad Energy. “Unless there are quick signals of de-escalation, we expect oil prices to be sharply re-priced upward early this week.”

Andy Lipow, president of Lipow Oil Associates, said that although Iranian oil facilities have not yet been directly targeted, the attack significantly increases the risk of supply disruptions in the region.

Lipow described the worst-case scenario as “Saudi oil infrastructure being attacked, followed by a complete closure of the Strait of Hormuz.” Given Iran’s possible sense of desperation, he estimates the probability of this scenario at about 33%.

“For now, how this crisis will unfold remains highly uncertain,” said Barclays analyst Amraprit Singh. “But at the same time, the oil market will have to face the most severe concerns.”

With only hours before the oil market opens, most traders expect Brent crude to surge significantly from last Friday’s close of $72.48 per barrel.

Brent crude closed last Friday at $72.48, up about 19% year-to-date. U.S. WTI crude settled at $62.02, up approximately 16% this year.