West Asia war: Is it the biggest risk ever to crude oil supply?

The war between the United States (US) and Israel against Iran has the potential to be the largest oil supply disruption in history if oil flows via the narrow Strait of Hormuz remain low or come to a halt.  Initially, energy infrastructure had not been targeted by Iran, but that has changed with attacks on facilities in Saudi Arabia and Qatar. This adds a critical further dimension to the shock wave hitting oil and gas markets, according to a new S&P Global Energy analysis.

 

S&P Global Energy Commodities at Sea data shows that on March 1 only 5 oil tankers transited the Strait compared with around 60 tankers per day recently.

 

“The duration of the war is critical. If the reduction in tanker traffic continues for a week or so it will be historic. Beyond that it would be epochal for the oil market with prices rising to ration scarce supply and impacts in financial markets.” – Jim Burkhard, Vice President and Global Head of Crude Oil Research at S&P Global Energy.

 

At risk: Up to 15 million b/d

 

In the first two months of this year 20.8 million b/d of crude oil and products was shipped via the Strait of Hormuz, with 82% going to Asian markets. About 18% of global LNG supply also transits the Strait as well. The loss of a good part of this energy supply could fuel financial and economic shocks. If tankers halt transiting the Strait, as much as 15 million b/d of crude oil and products—most of which is crude oil—are at risk, with the precise amount dependent on the utilization of Saudi and Emirati pipelines that bypass the Strait of Hormuz, the analysis says.

 

A supply disruption even at the mid-range of volumes at risk—7 to 8 million b/d of crude and products—would be higher than the volume that was initially at risk when Russia invaded Ukraine or the volume cut off from the market following Iraq’s 1990 invasion of Kuwait.

 

“While not certain, the risk is real. The potential impact on global oil supply and the world economy could be so significant that it is difficult to imagine a worst-case scenario—no tankers transiting the Strait of Hormuz—lasting more than a short while, but it could.” – Jim Burkhard, Vice President and Global Head of Crude Oil Research at S&P Global Energy.

 

Oil market balance and price outlook: From surplus to deficit?

 

Before the outbreak of hostilities, the S&P Global Energy outlook expected global crude oil production to exceed demand by 1.4 million b/d in the first quarter of 2026 and by an average of 1 million b/d for the year overall. However, the reduction in tanker traffic and the targeting of energy infrastructure have the potential for a shift—and possibly a historic one—from a surplus to a large deficit, which would mean prices high enough to ration scarce supplies and lower demand.

 

“Key questions are how much supply will be lost, for how long, and how do major powers react? That a scenario capable of causing the greatest oil supply upheaval in history is even under consideration is, by itself, alarming,” Daniel Yergin, Vice Chairman, S&P Global said.

 

The numbers:

 

• The Strait of Hormuz is roughly 21 nautical miles wide at its narrowest point, with the shipping lanes even narrower — two 2-mile-wide channels separated by a 2-mile buffer. 
• 20.8 million b/d of oil and products transit the Strait this year. 15.4 million b/d is crude oil. 
• More than 80% of oil transiting the Strait goes to Asian markets. 
• About 20% of world LNG supplies transit the Strait with more than 90% of that of volume going to Asian markets. 
• Bypass routes (Saudi East-West pipeline: 5-7 million b/d; UAE Habshan–Fujairah: 1.5 million b/d) are limited for the region overall compared to the Strait. 
• Kuwait, Qatar and Iraq—apart from a small share of pipeline exports to Turkey—rely almost entirely on the Strait; Iran’s little-used Jask terminal is unlikely to be able to absorb most of Iran’s exports.

  The author is Vice President and Global Head of Crude Oil Research at S&P Global Energy. Views are his own.