Al-Arabiya website wrote: Tensions are rising in the Strait of Hormuz, a vital global energy artery, with the acceleration of military developments since the outbreak of the “American-Israeli war on Iran” on February 28. Between indicators of possible calm and open escalation, markets have become anticipating events, amid an almost complete contraction in tanker movement through the strait, sharp fluctuations in oil and gas prices, and fear of a global energy shock.
With US President Donald Trump declaring that the war “may end soon” – and then warning of “much harsher” strikes if Iran tries to disrupt oil shipments – the risk premium in energy markets has risen to an unprecedented level, after reports confirming that the passage of oil through Hormuz has been paralyzed due to mutual attacks.
Analyzes indicate a significant decline in ship traffic, as it decreased by up to 80% according to estimates by the American Energy Institute, with increasing strikes on oil and gas facilities in Iran and the Gulf, and the suspension of shipping operations by major shipping companies. Other reports described the unrest as “the largest oil supply shock in modern history” as a result of stopping the passage of up to a fifth of the world’s oil.
Three scenarios determine the future of the Strait and the energy market
Based on Financial Times analysis by economist Martin Wolf, and updates from research centers, expectations intersect around 3 possible post-war paths, ranging from a temporary shock to a long crisis that may extend for years.
Scenario 1: Flash shock (one to two weeks)
This scenario is associated with stopping direct military operations without widespread destruction. Studies estimate a decline in global oil supplies by about 1.4%, with a similar decline in liquefied gas exports, according to Capital Economics forecasts. This ratio is sufficient to cause immediate price fluctuations, with tanker insurance premiums rising and temporary detours being imposed.
Data from energy research centers confirm that markets in such cases tend to “price the risk, not the actual loss,” which explains the short price jumps that quickly subside with the return of navigation.
In the first days of the war, oil prices rose by more than 7-9% before falling as Washington hinted that the operations were nearing an end.
As a result of this scenario, markets may experience limited disruption, a short-lived inflationary impact, and a gradual return to freight traffic.
The second scenario: a prolonged war without widespread destruction
In this scenario, a further decline in oil and gas supplies is expected, ranging from 5% to 6% annually, as attacks and mutual strikes continue without major facilities being permanently lost.
International reports estimate that ship movement stopped or slowed sharply, as an analysis by the American “IER” Center confirmed that shipping movement through the strait declined by more than 80% just days after the first strikes. Other data also indicates the suspension of production operations in a number of Gulf fields as a result of tanks being full and exports being impossible.
Asian countries are the most vulnerable to this scenario, as they depend on imports exceeding 80% of their oil needs through the Strait, which may push them to take emergency steps that include withdrawing from strategic reserves or reducing demand, according to Bloomberg estimates.
According to Capital Economics, global markets may be affected for about 3 months, with the rise in risk premiums and the transmission of successive waves of inflationary pressures in Europe and Asia, which will lead to a slowdown in global growth.
The “deep scar” scenario…a full year of reform
This scenario represents the most dangerous possibility: the destruction of major export facilities – such as the Iranian island of Kharg – leading to the loss of 8% to 9% of global supplies of oil and gas, and pushing prices to record levels that may reach $150 per barrel, according to estimates by “Capital Economics.” Reports have warned that the “almost complete disruption” of oil transit through Hormuz could be a turning point for the global economy, with impacts extending to metals, shipping, agriculture, and industrial supply chains, according to CNBC.
According to analyzes of global markets, this shock will be close in size to the crises of the 1970s, but its ability to generate sustainable inflation is less due to the decrease in the intensity of oil consumption in modern economies and the improvement of central banks’ tools. However, developing countries will face stifling pressure on the currency and the cost of financing.
But the worst in this scenario is a prolonged energy shock, stagflation risks, and a structural shift in energy markets.
After closing the strait…circumvention options and their limits
Although there are alternative pipelines, such as the Saudi East-West Line and the Emirates Line to Fujairah, existing alternatives cannot replace more than a limited portion of the daily capacity passing through Hormuz, which is more than 20 million barrels of oil, in addition to more than a fifth of liquefied gas exports.
It is estimated that more than 150 tankers have been stuck outside the strait since early March due to the inability to safely pass, which threatens to prolong shipping times and increase global insurance and shipping costs.
Global economic repercussions… from inflation to energy security
Oil prices rose by more than 25% within days, while fuel prices jumped for consumers around the world, and markets showed increased sensitivity to any political statements or new threats. In Africa, the shock began to be quickly reflected in fuel prices and local currencies, putting fragile economies in a more difficult position. Some Asian countries also began studying decisions regarding the duration of the work week and compulsory work-from-home options to reduce the intensity of traffic on the roads and reduce the fuel price subsidy bill.
Global trade experts warn that the extended closure of the Strait not only threatens the energy market, but also extends its impact to agricultural supplies, minerals and industrial goods, making it a turning point for the entire global economy.
Whatever the outcome of the current war, it appears that the Strait of Hormuz has entered the “permanent dangers” phase. The world is now facing a real test of the concept of energy security, and with it the urgent need to diversify sources of supply, enhance reserves, and develop alternative infrastructure away from the most sensitive bottleneck on the planet.
According to indicators, the post-war Strait will remain one of the most prominent sources of uncertainty in the global economy, which makes the “third scenario” the most costly despite being the least likely and most present in market pricing.
