Strait of Hormuz: Energy Markets Transformed Forever
On March 16, 2026, energy consultancy Wood Mackenzie estimated that Asian refineries could cut crude processing by as much as 6 million barrels per day in April due to escalating tensions in the Middle East and the potential closure of the Strait of Hormuz.
The ongoing military conflict between Iran and the United States and Israel, which began on February 28, 2026, prompted the closure of the Strait of Hormuz. The initial closure was driven by adjustments to insurance contracts for oil tankers, but concerns quickly shifted to potential attacks on oil shipping within the strait, which could lead to unsustainable losses or shipwrecks. According to analysis from the Dallas Federal Reserve, a complete cessation of oil exports from the Gulf region would remove close to 20 percent of global oil supplies from the market.
This disruption differs significantly from previous oil supply shortfalls. In 1973 and 1990, less than 7 percent of global oil supplies were removed from the market, and in 1979 and 1980, approximately 4 percent. The magnitude of the current disruption is substantially greater.
Asia is particularly vulnerable, sourcing roughly 65 percent of its crude imports from the Middle East, with Saudi Arabia, Iraq, and the United Arab Emirates as primary suppliers. India is expected to face acute pressure, potentially needing to reduce crude processing by around 600,000 barrels per day, representing a 12 percent reduction in utilization rates, as it attempts to replace lost Middle Eastern barrels. India’s reliance on Middle Eastern crude exceeds 80 percent of total imports in the absence of Russian supplies, and remains near 50 percent even with current Russian volumes maintained. The country as well holds relatively limited emergency crude inventories compared with other Asian peers.
The crisis is reshaping global energy markets, with energy security emerging as a defining challenge alongside price. For energy-importing economies across Asia and Europe, the situation highlights a structural shift in the global oil market. The Strait of Hormuz currently accounts for more than one-quarter of total global seaborne oil trade and about one-fifth of global oil and petroleum product consumption. Approximately one-fifth of global liquefied natural gas trade also transits the strait, primarily from Qatar.
Several Gulf producers, including Iraq and Kuwait, began curtailing oil production in early March 2026 as local oil storage facilities reached capacity. Prime Buchholz analysis indicates that the duration of the disruption will matter more than the initial spike in prices, and damage to infrastructure could prolong the disruption even after the strait reopens. Europe and parts of Asia appear to be the most exposed regions.
Growing expectations suggest the Federal Reserve may be unable to reduce rates this year, given a revised inflation outlook. Diversified real assets are being considered as a potential defense against these types of shocks, as well as periods of resource scarcity and broader inflation.