Iran's Strait of Hormuz Gamble Will Oil Prices Explode?

Article Heading: How High Could Oil Go If Iran Closes the Strait of Hormuz? Experts Weigh In

Despite recent market reactions downplaying geopolitical risks, energy analysts are cautioning investors against ignoring the potential for significant oil price spikes should Iran disrupt Middle East oil supplies. The Strait of Hormuz, a critical chokepoint for global oil, remains a focal point of concern.

Market Dismissal and Underlying Tensions

Following Iran's missile strikes on a U.S. airbase in Qatar – a response to earlier strikes against its nuclear program – oil prices surprisingly fell. This suggests a market belief that Tehran will avoid targeting regional energy infrastructure, fearing a substantial U.S. military response.

However, analysts at Barclays argue that the "worst-case scenario" – an Iranian attempt to block the Strait of Hormuz – is not adequately priced into the market. This narrow waterway is vital, with approximately 20 million barrels of oil passing through it daily.

Helima Croft, head of global commodity strategy at RBC Capital Markets, urges caution, stating, "Above all, we would caution against the knee-jerk 'the worst is behind us' hot take at this stage."

Price Surge Scenarios: Goldman Sachs and UBS Predictions

Investment banks are actively modeling potential impacts. Goldman Sachs estimates a temporary surge to $110 per barrel for Brent crude if oil flows through the Strait of Hormuz are reduced by 50% for one month, followed by a 10% reduction over the subsequent 11 months.
They predict a subsequent fall to an average of $95 per barrel in the fourth quarter as the U.S. and OPEC increase crude supply.

UBS offers a more dramatic scenario, suggesting Brent prices could exceed $120 per barrel if the strait is entirely closed. "In the case of a closure, we would be looking at a very material disruption to global oil markets, of a greater magnitude than the recent loss of Russian supply in 2022," UBS analysts, led by Henri Patricot, explained in a note.

Probability and Potential Iranian Actions

While both Goldman Sachs and UBS consider a full closure unlikely – given Iran's own reliance on the Strait for its crude exports – the risk of disruption remains. Croft emphasizes that Iran doesn't need a complex operation to deter shipping. The Joint Maritime Information Center has already advised vessels to exercise caution when transiting the strait.

"We do not believe it is a 'full closure or nothing' scenario when it comes to the waterway," Croft stated. "Iran may deploy their asymmetric capabilities to raise the economic cost of the combined U.S./Israeli operations."

Methods of Disruption: A Range of Options

Danske Bank chief analyst Minna Kuusisto outlines several potential disruption methods:

• Drone or missile attacks on vessels: Although the U.S. Navy could likely mitigate this threat within days.
• Mining the Strait: "If Iran declared the strait mined, no insurance company would allow vessels to navigate there," Kuusisto warned.
• Sinking a ship: Causing prolonged blockage and disruption.

Kuusisto suggests that while the U.S. could potentially clear a safe corridor near the UAE coast in about a week, "a more extensive mine-clearing would likely take weeks." This could lead to Gulf producers reaching maximum storage capacity and needing to cut production.

Desperate Measures and Potential Outcomes

Closing the Strait remains a last resort due to the high risk of a forceful military response. However, Kuusisto cautions, "desperate times lead to desperate action." She adds, "If the Supreme Leader Ali Khamenei felt that he had nothing to lose anymore, he might choose to go all in."

Key Takeaways:

• The market may be underestimating the risk of Iranian disruption to oil supplies.
• A closure or significant disruption of the Strait of Hormuz could trigger substantial oil price spikes.
• Iran has several options to disrupt traffic, ranging from targeted attacks to mining the waterway.
• While a full closure is considered less likely, the potential for escalation remains a significant concern.

Ultimately, the situation surrounding the Strait of Hormuz is a complex interplay of geopolitics, economics, and military strategy. While the probability of extreme scenarios may be debated, the potential consequences warrant careful consideration and proactive risk management by investors and policymakers alike.

Tags: Iran, oil prices, Middle East, oil supply, Strait of Hormuz, energy market, geopolitical risk, US military, Qatar airbase, oil disruption

Source: https://www.cnbc.com/2025/06/23/how-high-oil-could-go-if-iran-closes-the-strait-of-hormuz-goldman.html