With senior US officials estimating that a war with Iran is now expected to last weeks, not days, and Iran’s declaration of war on Israel and the US, the chances of the Strait of Hormuz being closed for an extended period are rapidly increasing, with all that this would entail with regards to oil and LNG supplies and prices.
Iran has already hit Ras Laffan in Qatar, the biggest LNG plant in the world, the Ras Tanura refinery in Saudi Arabia – one of the biggest in the world – and oil export facilities in Fujairah.
Despite frequent threats to close it, Iran has not completely closed the Strait of Hormuz for a long time. The Strait is one of the world’s most important oil and LNG transit routes, and although Iran has tried to disrupt traffic on occasions, the results have always been temporary. However, the threats to intervene and the risks posed to shipping are overwhelming.
Iran’s Revolutionary Guards (IRGC) navy has already issued warnings, declaring the Strait unsafe. There have also been reports of an attack on a ship off the coast of Oman.
Even more impactful, is the announcement by major insurance companies that they are canceling war-risk coverage for vessels in the Gulf from 5 March. This followed the widening of the Iran conflict, disrupting shipping, leaving at least four tankers damaged, two seafarers killed and 150 ships stranded around the Strait of Hormuz
The result is that shipping companies are avoiding the Strait due to the risks and rising insurance costs, suspending transits. Many tankers have turned back or stopped, with ships trapped in the Gulf, even though there is no official blockade yet. The Strait of Hormuz is almost empty and the longer this goes on, the higher oil and LNG prices will go.
Around 20 per cent of global oil exports and 25 per cent of global LNG exports pass through the Strait, making it the world’s most important oil transit checkpoint. So the impact on prices is expected to be significant.
Impact on oil and LNG prices
Any hint of disruption in the Strait affects the price of oil and LNG. Already, the price of Brent crude has risen by $84/b, up $14/b since the start of the year, a reminder of how seriously markets are taking any threats related to the Strait of Hormuz. The price of gas at the Dutch hup TTF has now risen to over €60/MWh, almost doubling since the end of February.
During the tensions of June 2025, prices experienced significant volatility, although the market eventually calmed down as it became clear that Iran would not fully implement the blockade at that time. Brent prices temporarily rose to $81/b and LNG prices to €41.5/MWh.
A prolonged closure, which is currently being threatened, could push Brent oil prices to more than $100/b, with some expecting LNG prices to spike to €100+/MWh, triggering inflation and global economic recession.
Impact on LNG supplies
LNG shipments through the Strait are already being suspended. Satellite images show ships turning back or stopping near the Strait, with almost no ships passing through.
A prolonged blockade would most severely affect Asia, which receives about 83 per cent of LNG passing through the Strait. Top importers are China, India, Japan and South Korea, which together account for 59 per cent of all LNG flows through the Strait.
Europe’s energy security is also at risk, as it will face intense competition for supplies of LNG outside the Gulf, and of course much higher prices.
A closure of the Strait could affect global LNG supply by up to 0.3 bcm/day. Global demand is around 1.2 bcm/day.
Impact on oil supplies
A closure of the Strait could affect 20 per cent of global crude oil demand. Analysts warn that if the blockade is fully implemented, the price of Brent crude could quickly skyrocket to $100-130/b.
China, India, Japan and South Korea account for about 80 per cent of the oil passing through the Strait. Japan and South Korea are particularly vulnerable, as they rely on fossil fuel imports for more than 80 per cent of their energy.
The global market is currently oversupplied by 2 to 3 million b/d. This would provide a buffer to absorb a temporary loss of production from Iran, but not a significant disruption of flows through the Strait.
Although Opec has excess capacity, much of it is geographically concentrated within the Persian Gulf and would be inaccessible while the Strait remains closed.
On Sunday Opec announced a 207,000 b/d hike in production, starting in April, that should help in the event of a prolonged conflict, but in reality, given the quantities being curtailed, this is a drop in the ocean.
Impact on supply chains and shipping
Even without a formal closure of the Strait, the impacts of a prolonged conflict would be increased shipping costs, increased insurance costs, increased volatility and volatility of oil and LNG prices, reduced petrochemical supply, economic impacts, and inflation.
If prolonged, the impacts could become structural, particularly if the conflict spreads to neighboring countries – something which is already happening.
If oil prices escalate further and remain high beyond this week, they will impact transport and electricity in Cyprus through a substantial increase in the price of petrol and diesel, as well as higher electricity prices, with concommitted effects on goods and the economy.
A closure of the Strait of Hormuz would constitute a systemic shock to the tanker and LNG carrier markets. Given that the combined Greek and Cypriot interests control approximately 30-35 per cent of the global tanker fleet and a large share of LNG carriers, the impact would be immediate and substantial: positive in terms of transport prices but also negative due to increased risk and the trapping of ships within the Gulf.
With the Gulf region now considered to be a war zone, insurance premiums are increasing dramatically, to the extent that smaller operators may face difficulties with working capital if insurers require upfront premiums.
In the short term, the impact would be high volatility, higher risk, but possibly higher profits after the initial disruption.
In the medium term, the increase in ton-miles would favor large tanker owners and the impact would potentially be structurally positive.
Overall, Greek and Cypriot shipping will not only not be weakened, but a sustained rerouting of global energy flows could strengthen its position.
