Global oil markets have entered a new, dangerous phase after Iran effectively moved to close the Strait of Hormuz, sending Brent and WTI above $90 a barrel and prompting warnings from major banks that $100 crude could arrive within days. Goldman Sachs says that if traffic through the strait does not show signs of normalising within a few days, prices are likely to breach $100 next week, and sustained disruption through March could push crude past the peaks seen in 2008 and 2022.
The immediate cause of the price spike is stark: before the disruption the strait handled roughly 20 million barrels per day; the closure has cut flows by about 90% — roughly 18 million barrels a day — according to the bank’s estimate. That sudden loss of supply has overwhelmed the limited rerouting options. Two main pipelines out of the Gulf — Saudi Arabia’s east–west line to Yanbu on the Red Sea and the UAE’s Habshan–Fujairah line to the Gulf of Oman — could theoretically carry up to around 4 million barrels a day, but in practice have added only about 900,000 barrels a day in recent days.
The shock is not only maritime. Air and missile strikes and retaliatory attacks have hit oil and gas infrastructure across the region: Saudi refineries and ports, Qatar’s LNG export facilities, UAE storage terminals and tank farms, Bahrain’s refinery units and fuel lines in Oman have all reported damage. A new and more worrying dynamic is that the conflict has extended beyond purely military targets. Israeli strikes on Iranian fuel facilities and a precise Iranian missile strike on the Haifa refinery signal a move toward what participants are calling an "energy war," raising the risk of protracted and deeper disruption to production and export capacity.
Insurance costs and the unavailability of cover have compounded the problem. War-risk rates for tankers have soared from about 0.25% to 3%, pushing premiums on a single voyage from roughly $625,000 to $7.5 million and adding an estimated $3.40 per barrel in transport cost alone. Several major mutual protection and indemnity clubs have announced cancellations of war-risk cover, and many shipowners are now refusing to sail through the Gulf rather than risk uninsurable losses. The result has been a practical paralysis of tanker flows through Hormuz even where physical passage is technically possible.
The supply squeeze is already prompting production cuts in the Gulf. Kuwait has announced precautionary reductions, and Iraq — among the most immediately affected exporters — has seen output collapse from about 4.3 million barrels per day before the conflict to roughly 1.7–1.8 million bpd now. Analysts warn that if production reductions turn into sustained shutdowns, prices could spike toward $150 a barrel, a shock with the potential to tip the global economy toward recession.
Major consuming countries have begun emergency measures. South Korea unveiled a KRW100 trillion (about $68 billion) rescue package and is preparing price caps on retail petrol; Japan has convened an energy task force and is considering emergency releases from strategic reserves. The United States has offered political-risk insurance to ships transiting the Gulf and announced temporary licensing to allow previously sanctioned Russian cargoes to reach markets, while signalling potential steps to boost non-Gulf supplies, including from Venezuela.
China’s exposure is complex but consequential. In 2025 China imported about 578 million tonnes of crude, of which 244.52 million tonnes — roughly 42.3% — came from the Middle East; about 73.7% of those Middle Eastern barrels transit Hormuz. Beijing has been quietly preparing: state purchases during a lower-price window boosted reserves sharply in 2025, with mainstream estimates putting China’s strategic and commercial oil stocks at 1.1–1.4 billion barrels, equivalent to roughly 140 days of consumption. China is also negotiating with Iran to keep some Chinese-owned or -operated tankers moving through the strait, and Tehran appears to be selectively allowing certain vessels safe passage.
Those buffers matter, but they are not a panacea. China’s domestic output of about 4 million barrels a day and diversified import sources reduce dependence on any single supplier, yet a prolonged Gulf shutdown will still squeeze global refined products and LNG markets, pushing prices higher and testing governments’ ability to shield consumers. The broader consequence is structural: a prolonged crisis will accelerate moves toward diversified supply chains, deeper strategic co-operation among importers and producers outside the Gulf, and renewed attention to maritime security and insurance frameworks for energy trade.
Resolving the crisis will be a geopolitical as much as an economic challenge. The quickest and most effective route to stabilising markets is reopening Hormuz and de‑escalating attacks on energy infrastructure. Absent that, markets will price in longer-term risk premia, inventories will be drawn down rapidly, and political pressure for emergency releases and production swaps will increase — measures that can blunt the immediate pain but not restore the lost capacity or undo the strategic realignments under way.