Iran is the 3rd largest oil producer in OPEC. This Islamic Republic shares a coastline with the Strait of Hormuz - the world's most important waterway for global oil trade.
The oil market has long underestimated the risk of oil supply disruptions in the Middle East. Traders are underestimating the threat posed by Iran's retaliation against the US attack on the market, according to Bob McNally - former White House energy advisor under former President George W. Bush.
This is a real problem" - McNally, founder and Chairman of Rapidan Energy, said. He predicted that future crude oil prices could increase by 5 to 7 USD/barrel when trading opens at 6 PM on March 1, ET time, as the market reflects some risks.
On February 27, Brent oil closed at 72.48 USD/barrel, up 1.73 USD, equivalent to 2.45%, while US West Texas Intermediate (WTI) crude oil ended trading at 67.02 USD/barrel, up 1.81 USD, equivalent to 2.78%。
Mr. McNally pointed out that Iran could make the Strait of Hormuz unsafe for commercial traffic, which could push oil prices above $100/barrel. The market is not aware of the fact that Tehran has large reserves of naval mines and short-range missiles that could seriously disrupt traffic on this waterway route.
According to data from energy consulting firm Kpler, more than 14 million barrels of oil per day were transported through the Strait of Hormuz in 2025, accounting for 1/3 of the world's crude oil exports by sea. About 3/4 of that oil is exported to China, India, Japan and South Korea. China, the world's second largest economy, receives half of its crude oil imports from the Strait of Hormuz.
The prolonged closure of the Strait of Hormuz will certainly lead to a global economic recession," Mr. McNally said.
More than 20 million barrels of crude oil were unloaded for export on February 28 in the Gulf region from Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Qatar, according to oil analyst Matt Smith at Kpler. Some oil tankers have diverted from passing through the Strait of Hormuz.
World oil reserves from Gulf countries will not be able to pass through if the strait is closed. This will isolate the market. About 20% of the world's liquefied natural gas exports are also transported through this strait, mainly from Qatar, and there will be no alternative source, Mr. McNally pointed out.
What you will see is the stockpiling situation, especially from Asian countries, major oil and gas importers, when they see the Hormuz Strait closed. You will witness an unprecedented fierce auction" - Mr. McNally said.
This analyst believes that oil prices will have to rise to a level high enough to trigger an economic recession, thereby reducing demand and rebalancing the market. "It's simply that there is no longer enough demand for flexibility or expansion for oil," he said.
The administration of President Donald Trump may use the Strategic Oil Reserve if oil prices soar, according to Kevin Book - chief research officer at ClearView Energy Partners. Currently, the US reserves have about 415 million barrels of oil, according to data from the Department of Energy.
A full-scale crisis in the Strait of Hormuz could exceed the compensation capacity of the strategic reserves in the US and member countries of the International Energy Agency (IEA)" - he warned on February 28.
