[US-Iran War] Oil Prices in the Balance Amid Middle East Conflict: "Depends on Blockade of the Strait of Hormuz"

On February 28, following attacks by Israel and the United States on Iran, the outbreak of war in the Middle East has led to a sharp decline in vessel traffic through the Strait of Hormuz, a key oil transit chokepoint. Some analysts have suggested that if the strait is blocked, international oil prices could surge past $100 (about 145,850 won) per barrel.

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The Strait of Hormuz is a strategic hub in the Middle East and a major global oil shipping route, located at the entrance to the Persian Gulf. About one-fifth of the world's oil and liquefied natural gas (LNG) consumption is transported through this strait.

According to the U.S. Energy Information Administration (EIA), as of 2024, 84% of the crude oil and condensate (ultralight oil and volatile liquid hydrocarbons produced as byproducts during natural gas extraction) shipped through the Strait of Hormuz, along with 83% of LNG, was destined for Asian countries, with major recipients including China, India, Japan, and Korea.

In the two days following the start of the war, the volume of vessel traffic through the Strait of Hormuz plummeted. According to the New York Times (NYT), on February 27, the day before the war began, 65 oil tankers carrying energy products passed through the strait, but by March 1, the day after the war began, only six had done so as of the afternoon.

The Financial Times (FT) of the UK explained that, despite the onset of the trade war following Donald Trump’s return to the U.S. presidency, attacks on U.S. institutional bodies such as the Federal Reserve, and threats to allied nations over issues like Greenland, global economic growth had continued. However, the current war has made it necessary to watch the oil market closely to determine whether this growth will falter or persist.

The key issue is whether the United States and its allies can prevent a sustained blockade of energy shipments through the Strait of Hormuz.

According to NYT, international oil prices (based on Brent futures) have risen more than 20% this year amid escalating tensions between the U.S. and Iran, surpassing $70 per barrel last week and approaching a seven-month high of $73. At about 1 a.m. (local time) on March 2, just one hour after trading opened, prices had climbed more than 6% compared to the closing price on February 27, nearing $77. In pre-market trading on March 1, prices at one point soared over 10% to approach the $80 mark.

Edward Fishman, Senior Fellow at the Council on Foreign Relations (CFR), stated, "The Strait of Hormuz is the most important maritime chokepoint in the world," adding, "If there is a significant and sustained disruption to all shipments through the strait, it would have a massive impact on global oil prices." He further predicted, "In that case, international crude oil prices could exceed $100 per barrel."

If this scenario occurs, the LNG market will also be affected, increasing inflationary pressure in major demand markets such as Europe. According to an analysis by Capital Economics, if Brent crude oil rises to $100 per barrel, it could push global inflation up by 0.6 to 0.7 percentage points.

Fishman also noted, "A more likely scenario with less severe consequences would be if Iran’s oil sales are halted without a complete blockade of the Strait of Hormuz." If this scenario materializes, oil prices are expected to rise to at least $80 per barrel.

If oil-producing countries other than Iran increase their production, the impact on oil prices could be more limited. On March 1, the main oil-producing consortium, OPEC+, announced that it would increase production by 206,000 barrels in April this year to stabilize the oil market.

While countries like China are highly dependent on Iranian oil, Iran’s share of global supply is not large. As of January this year, Iran’s crude oil production was 3.45 million barrels per day, accounting for less than 3% of global supply.

Amy Myers Jaffe, a research professor at New York University, told NYT, "The biggest question is whether oil facilities will be damaged and, if so, which ones," adding, "If the answer is that no facilities are damaged, then in my view oil prices will drop back down."

As of late at night on March 1 local time in Iran, there were no reports of attacks on any major energy-related facilities in the Middle East.

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