The US-Iran war has shut the Strait of Hormuz and sent Brent crude to $83. Here is a clear breakdown of what is happening to global oil supply and where prices go from here.
The US-Iran War and Global Oil Supply: What Is Actually Happening
On February 28, 2026, the United States and Israel launched coordinated strikes on Iran under Operation Epic Fury, targeting military facilities, nuclear sites, and leadership. Within hours, Iran's Islamic Revolutionary Guard Corps transmitted warnings via radio to vessels in the Strait of Hormuz, stating that no ships would be permitted to pass. What followed was the most significant disruption to global energy trade in modern history.
Tanker traffic dropped first by approximately 70%, with over 150 ships anchoring outside the strait to avoid risks. By March 2, traffic went to essentially zero. Brent crude rose by around 7%, reaching as high as $83 per barrel. When markets closed on Friday ahead of the conflict, the barrel cost was just over $73. European natural gas futures jumped by around 30% following the strikes. Daily freight rates for LNG tankers jumped more than 40% on Monday after Qatar halted operations.
This blog is a clear-eyed breakdown of what is actually happening to global oil supply, why the Strait matters more than most people understand, and what the realistic price scenarios look like from here.
What the Strait of Hormuz Actually Is
The Strait of Hormuz is a narrow waterway 21 miles wide at its narrowest point, sitting between Iran to the north and Oman to the south. It is the only maritime route connecting the Persian Gulf to open ocean - meaning every barrel of oil produced by Saudi Arabia, Iraq, UAE, Kuwait, and Qatar must pass through it to reach the world.
Its two unidirectional sea lanes facilitate the transit of around 20 million barrels of oil per day, representing roughly 20% of global seaborne oil trade. About a third of the world's total seaborne oil exports passed through the Strait in 2025, according to energy consulting firm Kpler.
The LNG picture is equally significant. The most critical impact to global gas markets comes from the approximately 80 million tons per annum of LNG - 19% of global LNG supply - that typically flows through the Strait. Qatar, which halted LNG production after Iranian drone strikes hit two key facilities, is the primary exporter. Some 30% of Europe's supply of jet fuel originates from or transits via the strait.
"We have not seen anything like this in pretty much the history of the Strait of Hormuz," said Claudio Galimberti, the chief economist at Rystad Energy, comparing it to blocking the aorta in a circulatory system.
How the Closure Happened
On February 28, 2026, the United States and Israel initiated coordinated airstrikes on Iran under Operation Epic Fury, targeting military facilities, nuclear sites, and leadership, resulting in the death of Ali Khamenei. Iran responded with missile barrages on Israeli cities and US bases in the Gulf, including in the UAE, Qatar, and Bahrain, causing casualties and infrastructure damage.
Within hours of the strikes, the IRGC transmitted warnings via VHF radio to vessels in the strait, stating that no ships would be permitted to pass. At least three tankers were struck near the strait, including one off Oman that was set ablaze.
A commander in Iran's Revolutionary Guard Corps said on Monday that the strait was "closed" and that any vessel attempting to pass through the waterway would be set "ablaze." At least five tankers have been damaged, two personnel killed, and about 150 ships stranded around the strait.
Protection and indemnity insurance was removed for March 5, making the economic risk too high for ship owners to use the strait. The strait was declared a high-risk zone, yielding extra pay and right of refusal for crew members.
In the days before the strikes, war-risk ship insurance premiums for the strait increased from 0.125% to between 0.2% and 0.4% of the ship insurance value per transit. For very large oil tankers, this is an increase of a quarter of a million dollars.
The Oil Price Scenarios
The central question every market participant is trying to answer right now is how high Brent crude prices go from here. The honest answer is that it depends almost entirely on the duration and depth of the disruption.
Goldman Sachs Research estimates that traders currently demand about $14 more per barrel than before the conflict to compensate for increased risk - roughly corresponding to the effect of a full four-week halt in Strait flows with spare pipeline capacity used as a partial offset.
Goldman Sachs has modeled six specific scenarios:
● Full one-month closure with no offsets: oil prices rise $15 per barrel
● Full one-month closure with all spare pipeline capacity used: $12 per barrel increase
● Full one-month closure with spare pipeline and SPR releases at 2 mb/d: $10 per barrel increase
● 50% partial closure for one month with spare pipeline capacity: $4 per barrel increase
● 25% partial closure for one month with spare pipeline capacity: $1 per barrel increase
Brent would surge toward $200 per barrel if Iran succeeded in enforcing a full closure by deploying mines, anti-ship missiles, and other weapons, according to Michael Hsueh, a research analyst at Deutsche Bank.
The price of Brent crude was $70.77 per barrel when Trump gave his State of the Union address on February 24. By early March 4, it had risen to $81.73 - a 15% increase in eight days.
GasBuddy reported a US national average gasoline price of $3.19 per gallon on March 4, up from $2.94 three days earlier - bringing gasoline above its price when Trump took office and wiping out all the progress during his tenure. The March 2 increase was the largest one-day price rise since March 2022, shortly after Russia invaded Ukraine.
Why Prices Haven't Exploded Yet
Given the scale of the disruption, many observers have been surprised that oil prices haven't spiked more dramatically. There are two structural reasons for this.
First, markets have recently been oversupplied with oil, allowing countries to fill their stockpiles. China, in particular, has plenty of oil in storage both on land and floating offshore - that means the world is well-positioned to weather a short-term disruption. China has amassed reserves of roughly one billion barrels of oil, around half of its storage capacity.
"Big oil exporters in the Gulf have been moving oil at a furious pace out of the Gulf and away from the Strait of Hormuz for the past few weeks," said Josh Krane, filling reserves in the Red Sea, the Netherlands, and South Africa. "There is a lot of Saudi oil right now that's nowhere in danger of an Iranian attack."
Second, shale oil producers have expanded US clout in the global oil market, limiting some of the economic fallout. "The spike in oil and gasoline prices during a major geopolitical event like this is significantly less because the US has become the largest crude oil producer in the world," said Rob Thummel, senior portfolio manager at Tortoise Capital.
European natural gas stockpiles, in contrast, are depleted right now - one reason for a bigger price reaction there than in crude oil markets.
The LNG and Natural Gas Crisis
While crude oil markets have been relatively measured, the LNG supply disruption picture is considerably more alarming - particularly for Europe and Asia.
In a scenario where LNG flows through the Strait are fully halted for one month, Goldman Sachs Research estimates that Dutch natural gas, or TTF, could approach 74 EUR/MWh.
A hypothetical longer disruption of natural gas supply transit lasting more than two months would likely lift European natural gas prices to more than 100 EUR/MWh. TTF natural gas traded at about 31.6 EUR/MWh on Friday.
South Asia is especially reliant on LNG from Qatar and the UAE, the sole export route for which is through the Strait. In 2025, Pakistan sourced 99% of its LNG imports from Qatar and the UAE. Bangladesh and India each obtained 59%.
Europe gets 12% to 14% of its LNG from Qatar, through the strait. While more than half of Europe's LNG imports come from the US, the loss of Qatari supply creates a gap that American LNG exporters will struggle to fill quickly given existing contractual commitments.
Natural gas is also a key input in making nitrogen fertilizer, and a significant portion of plant food is transported through the Strait. Rising fertilizer prices would increase the cost of growing grains and soybeans, and could result in higher food prices, further fueling an inflation scenario if the conflict is sustained.
The Bottom Line
The US-Iran war oil supply shock is the most significant disruption to global energy trade since the 1973 Arab oil embargo. The Strait of Hormuz closure has removed approximately 20 million barrels per day of throughput capacity from global maritime trade, with no adequate alternative routes to absorb that volume in the near term.
Markets have been more measured than the scale of disruption might suggest - reflecting pre-loaded strategic reserves, US shale production capacity, and a trader assumption that this resolves within weeks.
If that assumption proves correct, the oil price spike will be significant but temporary. If the conflict extends beyond five to six weeks, or if Iran successfully deploys mines to enforce a physical closure of the Strait, the price trajectory changes to a different order of magnitude entirely.
The next two weeks will determine which scenario this becomes.