Will the Strait of Hormuz Closure Push Oil Prices to Triple Digits?

06-14-2025, NEW YORK— Will a potential closure of the Strait of Hormuz, triggered by escalating tensions between Israel and Iran, drive oil prices into triple digits? Following Israel’s airstrikes on Iran’s nuclear and military sites on June 13, 2025, traders exchanged a record volume of $80 West Texas Intermediate (WTI) crude oil call options, anticipating price spikes as fears grow of a broader Middle East conflict disrupting the strait, a chokepoint for 20% of global oil supplies.

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What Triggered the Latest Tensions?

Israel’s “Operation Rising Lion” targeted Iran’s Natanz nuclear facility and killed several commanders, prompting Iran to launch over 100 drones and missiles at Israel, most intercepted by Israeli defenses. This escalation, following earlier 2024 clashes, has heightened concerns about Iran retaliating by disrupting the Strait of Hormuz, a 21-mile-wide passage between Iran and Oman critical for oil exports from Saudi Arabia, Iraq, Kuwait, and the UAE.

Why Is the Strait of Hormuz Critical?

The strait handles about 21 million barrels per day (bpd) of crude oil and petroleum products, roughly 21% of global consumption, and 20% of liquefied natural gas (LNG) trade, primarily from Qatar. A closure would remove 17-18 million bpd from markets, with only Saudi Arabia and the UAE having pipelines to bypass it, offering 3.5 million bpd of unused capacity. Alternative routes add weeks and significant costs to shipments, tightening global supply.

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Could a Closure Push Prices to Triple Digits?

Analysts warn that a sustained strait closure could send Brent crude above $100 per barrel, potentially reaching $150-$350, surpassing the 2008 peak of $147. A one-month blockade might spike prices to $350 before demand destruction forces a retreat below $200, according to commodity analysts. Even partial disruptions, like mining or attacks on tankers, could raise insurance premiums by 15–20%, halting tanker traffic and pushing WTI past $100. However, such extreme forecasts assume no swift military or diplomatic resolution.

Why Might Iran Hesitate to Close the Strait?

Iran exports 1.7 million bpd through the strait, generating 65% of its government revenue. A closure would cut its income, risk domestic unrest, and provoke U.S. and allied naval intervention, given the presence of the U.S. Fifth Fleet in Bahrain. Iran has repeatedly threatened to block the strait since 2011, but these threats have not materialized, indicating that such an event is unlikely unless Tehran faces existential threats. Critics argue Iran’s rhetoric serves as leverage rather than intent, given the global backlash it would face.

How Are Markets Reacting?

WTI crude jumped 7.62% to $72.98 per barrel on June 13, peaking at $77.62, while Brent hit $77.45. The surge in $80 WTI call options reflects trader bets on further gains, though markets remain cautious, with WTI down 12.4% year-to-date before the escalation. Forecasts vary, with some predicting WTI at $89 by mid-2025, while others expect a drop to $59 in 2026 if tensions ease. The market’s muted response to prior 2024 incidents suggests skepticism about a sustained closure.

Did you know?
A Strait of Hormuz closure could spike oil prices to $350 per barrel, disrupting 20% of global oil and LNG trade, with limited pipeline alternatives.

What Could Mitigate Price Spikes?

OPEC+ holds 5.8 million bpd of spare capacity, primarily in Saudi Arabia, which could offset Iranian losses but not a full strait closure. Strategic petroleum reserves in the U.S., China, and Europe could provide temporary relief, though prolonged disruptions would strain these stocks. Diplomatic efforts, including U.S. calls for de-escalation, aim to prevent a blockade, while naval escorts could deter Iranian actions. However, these measures may not fully counteract a high-impact disruption.

What Are the Economic Risks?

Triple-digit oil prices could fuel global inflation, raise shipping costs, and tip economies into recession, particularly in Asia, where China, India, and Japan rely heavily on strait-transited oil. Chemical markets, dependent on Middle Eastern feedstocks, could face supply shocks, with 21% of global polyethylene capacity at risk. A closure would also disrupt Qatar’s LNG exports, exacerbating energy crises.