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The Strait of Hormuz Crisis, and the Future of Global Oil Markets

Inovex Research estimates that a full military escalation and temporary closure of the Strait of Hormuz could increase Oman oil price to approximately $280 per barrel.



The research conducted by Inovex Strategic Research Centre explains that:


  • Modern oil markets are increasingly influenced by geopolitical tensions rather than traditional supply and demand factors alone. The study highlights the growing strategic importance of Middle Eastern oil benchmarks such as Oman and Dubai crude, particularly for Asian economies.

  • A major focus of the research is the role of China. As the world’s largest crude oil importer, China depends heavily on Persian Gulf energy supplies, with nearly half of its oil imports passing through the Strait of Hormuz. The study argues that Beijing’s primary concern extends beyond rising oil prices to long term energy security and secure access to global shipping routes.

  • The article also examines the role and limitations of strategic petroleum reserves. It explains that many countries, particularly the United States and European Union members, maintain large emergency oil reserves to reduce the impact of supply disruptions. However, recent reserve releases have reduced emergency stock levels, potentially limiting future crisis response capacity. While these reserves may stabilise markets in the short term, they are unlikely to prevent sustained increases in oil prices during prolonged disruptions.

  • The research outlines six potential future scenarios ranging from controlled tensions to full military escalation and temporary closure of the Strait. Under the most severe scenario, oil prices could rise sharply, with Oman crude potentially reaching approximately $280 per barrel.

 

Geopolitical Transformation of Global Oil Benchmarks and the Strategic Importance of the Strait of Hormuz


The Strait of Hormuz has once again become one of the central concerns of global energy markets. As one of the world’s most strategically important maritime corridors, the Strait handles around 20% of globally traded petroleum liquids and a significant share of global liquefied natural gas exports. Any disruption to shipping through the Strait can immediately affect oil prices, inflation expectations, industrial supply chains, shipping insurance costs, and financial markets worldwide.


The revised comparative oil benchmark figure covering the period from 1960 to 2026 illustrates the long term transformation of global oil pricing from a relatively stable commodity system into a highly geopolitically sensitive market structure. The figure compares major international benchmarks including Brent, WTI, Oman, Dubai, Murban, and Western Canadian Select (WCS), demonstrating how benchmark relationships change during periods of geopolitical crisis, supply disruption, market restructuring, and regional instability. The projected values for 2026 represent scenario based estimates rather than confirmed market outcomes.


Several major historical turning points shaped the current structure of global oil markets. The 1973 Arab oil embargo and the 1979 Iranian Revolution transformed oil from a primarily industrial commodity into a strategic geopolitical asset capable of influencing global economic stability. The 2008 commodity supercycle later demonstrated how rapidly prices could rise under conditions of strong global demand, limited spare production capacity, and speculative financial activity. During this period, Brent crude prices approached approximately $147 per barrel before collapsing during the global financial crisis.



Another major structural transformation emerged following the United States shale revolution beginning around 2010. Rapid expansion in unconventional oil production weakened the dominance of traditional benchmark relationships and increased divergence between crude types. At the same time, Asia became the primary centre of global oil demand growth, strengthening the strategic importance of Middle Eastern crude benchmarks such as Oman and Dubai.


Unlike Brent and WTI, which operate as highly financialised global benchmarks, Oman crude remains strongly linked to physical delivery conditions and Asian refinery demand, although it is also actively traded through futures markets. This distinction becomes particularly important during geopolitical instability because buyers compete more directly for secure physical cargoes rather than relying mainly on futures trading activity. As China, India, and other Asian economies expanded their energy consumption, Oman crude gained increasing strategic influence, particularly after 2007 and again during the geopolitical tensions of the early 2020s.


Dubai crude followed a similar trajectory. Although Dubai’s own oil production has declined substantially over time, Dubai crude continues to function as one of the key pricing references for Middle Eastern oil exports to Asian markets. Its strategic importance today lies mainly in its benchmark function rather than its production volume.


The figure projects that under severe Hormuz disruption scenarios, Oman and Dubai crude could temporarily trade above Brent prices. This would represent an important structural shift within global energy markets. During periods of heightened geopolitical tension, physical delivery security may become more valuable than the traditional quality advantages associated with lighter sweet crude oils.


The changing position of Brent reflects this broader transformation. For decades Brent crude represented the world’s premium benchmark because of its relatively high quality, lower sulfur content, and strong international trading reputation. However, its dominance gradually weakened during the mid 2010s as global oil supply expanded following the shale revolution and Asian demand increasingly influenced global pricing dynamics. Under modern crisis conditions, immediate access to physically deliverable crude may become more important than benchmark prestige alone.


The figure also highlights the persistent discount associated with Western Canadian Select. WCS remains significantly cheaper than most international benchmarks because it is classified as heavy sour crude oil. Heavy sour crude contains higher sulfur content and requires more complex refining processes, increasing refinery operational costs. Transportation constraints further deepen the discount because Canadian oil production remains geographically distant from major export terminals and often faces pipeline bottlenecks. Following the North American shale expansion, these logistical pressures intensified and widened the price gap between WCS and lighter benchmark oils.


Strategic Petroleum Reserves and Market Constraints


Strategic petroleum reserves may reduce the immediate impact of a Strait of Hormuz disruption, but their stabilising capacity is now more limited than during previous crises. In recent years, major economies released hundreds of millions of barrels from emergency reserves, including more than 180 million barrels from the United States Strategic Petroleum Reserve alone. This significantly reduced available emergency buffer capacity within global oil markets.


Although coordinated reserve releases could temporarily offset part of a potential Hormuz supply disruption, the Strait normally handles around 20 million barrels of oil per day.


Consequently, even a 400 million barrel coordinated reserve release would theoretically cover only around 20 days of full disruption under severe closure conditions.


In addition, depleted reserves eventually require replenishment. Future reserve refilling programmes by major economies could add substantial additional demand to already stressed oil markets, increasing medium term upward pressure on prices. As a result, strategic petroleum reserves may moderate short term volatility, but they are unlikely to prevent structurally higher oil prices under prolonged Hormuz disruption scenarios.


China, Energy Security, and the Strait of Hormuz


Another important issue within the evolving Hormuz crisis is the strategic position of China. China is currently the world’s largest crude oil importer, importing approximately 11 to 12 million barrels of oil per day. Although rising oil prices can negatively affect Chinese economic growth, an even greater concern for Beijing is the long term physical security and accessibility of oil supplies.



Approximately 45% to 50% of Chinese crude oil imports are estimated to pass through the Strait of Hormuz. China imports around 5 to 6 million barrels per day from Persian Gulf producers including Saudi Arabia, Iraq, Iran, Kuwait, and the United Arab Emirates. Consequently, even partial disruption within the Strait could create significant economic and industrial pressure on China.



China has attempted to reduce this vulnerability by expanding strategic petroleum reserves, increasing pipeline imports from Russia and Central Asia, and diversifying global energy investments. Chinese strategic petroleum reserves are estimated to exceed 1 billion barrels when combining state and commercial storage capacity. However, prolonged disruption in the Strait could still create major pressure on Chinese energy security.


From a geopolitical perspective, complete removal of Iranian influence from the Strait of Hormuz could significantly alter the regional balance of power. If the United States and its allies achieved stronger long term control over maritime security and energy transit routes in the Persian Gulf, China could become increasingly dependent on energy flows operating within an American dominated security framework. This would increase Beijing’s strategic vulnerability during future periods of political confrontation between China and the West.


At the same time, China already faces growing limitations regarding alternative energy suppliers. Russian oil exports continue operating under sanctions and financial restrictions, while Venezuelan oil production and exports remain politically uncertain following the removal of Nicolás Maduro and the emergence of a new government operating under strong American influence, while the country continues to face long term infrastructure decline and production instability. Consequently, it may not be strategically acceptable for China to place the long term stability of its industrial growth, economic expansion, and energy security largely under American geopolitical influence through control of the Strait of Hormuz.


Under such conditions, China may rationally prefer a market environment characterised by higher oil prices under continued Iranian influence over the Strait rather than a system in which its primary energy lifeline becomes fully dependent on American strategic control. From Beijing’s perspective, higher prices may represent a manageable economic cost, whereas strategic dependence on a geopolitical rival could create a far greater long term national security risk.


Potential Senarios for Oil Price


The growing importance of Persian Gulf benchmarks therefore raises major questions regarding the future of global energy security under potential Strait of Hormuz disruption scenarios.


Scenario 1: Controlled Tension and Limited Disruption


Under this scenario, tensions remain elevated but manageable. Shipping continues under naval protection while regional powers avoid direct large scale military confrontation. Insurance costs and freight rates increase, but oil exports continue flowing through the Strait.

Strategic petroleum reserves would likely play a stabilising role during this phase by reducing panic within financial markets and helping governments manage temporary supply uncertainty.


Indicative estimated oil prices:**

• Brent: $90 to $120 per barrel

• Oman crude: $105 to $135

• Dubai crude: $100 to $130

• Murban: $98 to $128

• WTI: $82 to $110


This scenario is currently considered one of the more realistic short term outcomes because major powers maintain strong economic incentives to avoid a severe global energy shock.


Scenario 2: Partial Restriction of Shipping Routes


Under this scenario, shipping lanes remain formally open, but vessel inspections, delays, security incidents, and selective restrictions reduce traffic volumes significantly. Some shipping companies may voluntarily avoid the region because of rising insurance costs and security concerns.


Governments would likely begin coordinated strategic reserve releases in order to moderate price volatility and maintain market confidence. However, reserve releases may only partially offset the reduction in Persian Gulf export flows.


Indicative estimated oil prices:

• Brent: $115 to $150

• Oman crude: $135 to $170

• Dubai crude: $130 to $165

• Murban: $125 to $160

• WTI: $105 to $140


Asian economies would likely experience the greatest pressure because of their strong dependence on Persian Gulf energy imports. LNG markets would also likely face substantial additional volatility.


Scenario 3: Full Military Escalation and Temporary Closure


This represents the most severe short term scenario. It could involve direct naval confrontation, missile strikes on energy infrastructure, mining operations, or broader regional conflict involving international military powers.


Under this scenario, large scale emergency reserve releases would almost certainly occur. Strategic reserves could temporarily soften the immediate impact of supply disruptions, particularly during the first weeks of the crisis. Nevertheless, if shipping disruption continued for an extended period, reserve systems alone would be insufficient to stabilise global oil markets fully.


Indicative estimated oil prices:

• Brent: $160 to $230

• Oman crude: $190 to $280

• Dubai crude: $180 to $260

• Murban: $175 to $245

• WTI: $145 to $210


Under extreme panic conditions, temporary price spikes could move even higher. Global recession risks would increase sharply as inflation, transportation costs, and industrial energy prices rise simultaneously.


Scenario 4: Diplomatic De escalation


Under a successful diplomatic outcome, maritime security agreements and negotiated de escalation gradually reduce tensions. Shipping confidence improves and oil markets stabilise, although elevated insurance costs may continue for several months.


Strategic reserve releases initiated during earlier stages of the crisis would likely be reduced gradually as markets stabilise and normal shipping patterns return.


Indicative estimated oil prices:

• Brent: $75 to $95

• Oman crude: $80 to $105

• Dubai crude: $78 to $100

• Murban: $80 to $102

• WTI: $70 to $90


This scenario would reduce inflationary pressure globally and ease fears regarding long term supply disruption.


Scenario 5: Long Term Structural Energy Shift


If instability surrounding the Strait continues for an extended period, global energy systems may gradually restructure. Persian Gulf producers could accelerate bypass pipeline development, Asian importers may diversify suppliers, and strategic investment in renewables, LNG infrastructure, and energy storage may increase significantly.


At the same time, many countries may seek to expand strategic petroleum reserves further as part of broader national energy security planning. Governments could increasingly prioritise reserve diversification, refinery flexibility, and domestic storage capacity to reduce vulnerability to future maritime disruptions.


Under this scenario, oil prices may stabilise but remain structurally higher than pre crisis averages because geopolitical risk premiums become permanently embedded within global energy markets.


Indicative long term price ranges:

• Brent: $90 to $120

• Oman crude: $100 to $135

• Dubai crude: $95 to $130

• Murban: $95 to $125

• WTI: $80 to $110


The evolving Hormuz crisis suggests that future oil markets may no longer be dominated by a single benchmark hierarchy centred exclusively on Brent and WTI. Instead, global oil markets appear increasingly fragmented, regionally interconnected, and highly sensitive to shipping security and geopolitical risk. Persian Gulf benchmarks such as Oman and Dubai are gaining strategic importance because they remain directly linked to one of the world’s most critical energy transit corridors.


The Most Realistic Medium Term Scenario: Controlled Passage and Structurally Higher Prices

A more realistic medium term outcome may involve neither complete closure nor full normalisation of the Strait of Hormuz, but rather the emergence of a controlled and politically managed transit environment. Under this scenario, Iran may maintain strategic pressure over the Strait without attempting a permanent shutdown that could trigger overwhelming international military escalation. Instead, Iran could attempt to strengthen its political and economic influence over maritime traffic through selective inspections, expanded coordination requirements, unofficial transit arrangements, or insurance systems accepted by Iranian authorities for vessels operating within the region.


In practice, this could gradually create a two tier shipping structure. Some vessels and trading companies may continue operating through the Strait under insurance and transit arrangements accepted by Iran, while others may avoid the route because of elevated legal, financial, and security risks. Shipping would therefore continue, but under slower, more expensive, and increasingly fragmented conditions.


At the same time, long term continuous naval protection by the United States may become increasingly difficult financially and politically. European countries currently face military and economic constraints, while China remains heavily dependent on Persian Gulf energy imports and is unlikely to support direct military confrontation that could further destabilise regional energy flows. This creates a situation in which no major power is fully capable of eliminating Iranian influence over the Strait despite continued international naval presence.


Another important factor involves the future of Russian oil sanctions. Temporary flexibility allowing portions of Russian oil exports to continue entering global markets previously helped reduce pressure on global oil prices during earlier periods of instability. However, such arrangements may not continue indefinitely. If restrictions on Russian exports tighten again while Hormuz related risks remain elevated, global spare production capacity could become increasingly constrained.


Strategic petroleum reserves would likely continue moderating short term volatility under this medium term scenario. However, reserve systems cannot permanently substitute for stable maritime energy flows through the Persian Gulf. Consequently, oil markets may continue operating under a structurally elevated geopolitical risk premium despite repeated reserve interventions.


Although the United States and its allies could attempt to secure the Strait militarily, Iran would still retain multiple asymmetric capabilities capable of disrupting maritime traffic. These include drones, anti ship missiles, naval mines, fast attack craft, and selective strikes on commercial vessels or energy infrastructure. Consequently, the central issue may no longer be whether the Strait remains formally open or closed, but whether shipping companies, insurers, and energy markets consider transit sufficiently safe and economically viable.


Under such conditions, oil markets would likely operate under a permanent geopolitical risk premium. Physical delivery security, maritime insurance costs, shipping delays, and regional military uncertainty would increasingly influence benchmark pricing alongside traditional supply and demand fundamentals.


Indicative estimated oil prices under this medium term scenario:

• Brent: $110 to $145 per barrel

• Oman crude: $135 to $180

• Dubai crude: $130 to $175

• Murban: $125 to $170

• WTI: $98 to $140


Oman and Dubai crude may continue trading at significant premiums relative to Brent during periods of heightened tension because of their direct connection to physical Persian Gulf exports and Asian refinery demand. This would reinforce the broader structural transformation already visible within global oil markets, where physically accessible regional benchmarks are gradually gaining strategic importance relative to highly financialised Western benchmarks.

The revised comparative benchmark figure ultimately illustrates a broader transformation within global energy systems. Physical accessibility, maritime security, infrastructure resilience, strategic reserve capacity, and geopolitical stability are becoming increasingly influential in determining oil prices alongside traditional factors such as crude quality, refinery compatibility, and production cost.


** The article does not use a formal mathematical oil pricing model. The price estimation is done through a scenario based geopolitical risk assessment approach combined with historical benchmark behaviour and market structure analysis.

 

References



4 Comments

James B.
10 hours ago

Very interesting. It seems your final assumption is going to be true. Iran is imposing its control over the passage, and oil prices are likely to become structurally higher.

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Guest
9 hours ago
Replying to

If we do a historical review, we will see still nothing has happened. 1973–1974 Arab Oil Embargo; Oil prices quadrupled (about +300% to +400%). Retail gasoline prices surged dramatically, with some reports showing gasoline prices rising about 40% in a single month and much more over the full crisis period.

In recent years and in 2022 Russia–Ukraine War; US average gasoline prices rose from around $3.30 to over $5.00 per gallon, roughly +50% in a few months.

So historically, a 42.2% increase is severe, but it is still below other historic shocks.

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