Oil and the Strait of Hormuz
Back to overview | Related: timeline, fed-and-rates
This is the single most important variable in the entire crisis. Everything else — equities, gold, rates — flows from what happens here.
Why Hormuz Matters
The Strait of Hormuz is a narrow waterway between Iran and Oman. It carries:
- approx. 20 million barrels of oil per day
- approx. 20% of globally traded oil
- approx. $500 billion in annual energy trade
- China, India, Japan, and South Korea depend on it for 69% of their crude
There is no alternative route for most of this oil. When Hormuz closes, the oil doesn’t go somewhere else — it just stops.
Current Status (March 2)
Not formally closed. Iran’s General Rezaei said it’s open “until further notice.” But operationally, it is shut:
- Zero traceable crude tanker passages since Saturday night
- approx. 150 tankers anchored in open Gulf waters, unable to transit
- approx. 170 containerships (450,000 TEU capacity) trapped inside the Gulf
- Iranian IRGC transmitting to vessels: “no ship is allowed to pass”
- Three tankers struck by missiles/drones in the first 36 hours
- Hapag-Lloyd suspended all transits. Other carriers following.
- Kuwait’s port of Shuaiba suspended, evacuating vessels
The insurance kill switch: Even if Hormuz is technically “open,” insurers are pulling coverage. War risk premiums doubling. Lloyd’s Market Association expected to update Listed Areas designation. Without insurance, ships cannot sail — regardless of what Iran says. Insurance is doing what Iran’s navy doesn’t need to.
Oil Price Movement
| Time | Brent | WTI | Trigger |
|---|---|---|---|
| Feb 28 pre-strike | approx. $67 | approx. $64 | Baseline |
| Feb 28 close | $72.87 (+9%) | $67 (+5%) | Strikes begin |
| Mar 1 Sunday futures | approx. $79 (+8%) | approx. $72 (+8%) | Iran retaliates, Hormuz shuts |
| Mar 2 early trading | $79.41 (+9% from Fri) | approx. $73 | Asia opens, insurance pulls |
Forecasts if this continues:
- Goldman Sachs: Brent could breach $100 if strikes expand
- Barclays: $100/bbl likely
- UBS: Material disruption could send Brent above $120
- Every $10/bbl adds 0.3–0.4 percentage points to US inflation
OPEC+ Response
Emergency meeting on March 1. Agreed to raise output by 206,000 bpd for April. But:
- This is tiny vs. 20M bpd flowing through Hormuz
- Options discussed ranged from 137K to 548K — they chose conservative
- Saudi and UAE have spare capacity but can’t export it with Gulf navigation disrupted
- OPEC+ statement didn’t even mention the war — cited “healthy market fundamentals”
Translation: OPEC+ is not going to save this. The supply gap is physical, not political.
What Happens at $100 Oil
If Brent crosses $100:
- Goldman Sachs warns recession probability spikes
- US inflation could hit 4.5-6% (see fed-and-rates)
- Consumer spending contracts — every 300/year
- Airlines, shipping, manufacturing all face margin compression
- Emerging markets that import oil (India, Turkey, South Korea) face currency crises
- Fed is trapped between fighting inflation and supporting growth
What to Watch
- First tanker through Hormuz — this is the signal. When a major tanker makes the transit with insurance, the crisis is easing.
- Lloyd’s Listed Areas update — if Hormuz is formally listed, insurance costs become structural, not temporary.
- Brent at $100 — the threshold where this becomes a global recession trigger.
- OPEC+ emergency session — if they call another meeting, the 206K wasn’t enough.