Date first published: 21/04/2026
Key sectors: all; oil and gas
Key risks: supply chain disruptions; inflation, oil shortages
Risk development
On 28 February, the United States (US) and Israel launched coordinated airstrikes on Iran, killing Supreme Leader Ali Khamenei and prompting Tehran to close the Strait of Hormuz. The resulting supply disruption is the largest in the history of oil markets. Global supply fell by 10.1 million barrels per day in March. The shock is more than double the 4.5 million barrels per day removed by the 1973 Arab oil embargo, which led to prices quadrupling. However, Brent crude futures traded in between US$90 to US$100 per barrel through most of April, which while elevated, appear to underplay the extent of the shock. As of 21 April – with the ceasefire expiring, a second round of talks in doubt, and the US Navy having seized an Iranian cargo vessel on 20 April – Brent is trading just below US$95 a barrel.
Why it matters
The apparent moderation of futures prices conceals a serious physical reality. Dated Brent, the benchmark for real-world barrels, reached US$144 per barrel in early April before falling to approximately US$130, leaving a gap of around US$35 per barrel against front-month futures, a divergence without historical precedent. Saudi Arab Light, which traded at a discount in February, was being offered to European customers at a premium of US$27.85 per barrel for May loading, while middle distillate prices in Singapore reached all-time highs above US$290 per barrel. Futures markets appear to be pricing eventual resolution rather than the physical reality of severely depleted strategic reserves and the challenges with normalisation even after a settlement.
The geographic impact is uneven, with Asia facing the most acute exposure. China relies on the strait for roughly half its crude imports and a third of its liquefied natural gas (LNG), while Japan sourced 94 per cent of its crude from the Middle East before the war. India has moved quickly to diversify, securing sanctions waivers for Russian crude and raising export duties to protect domestic supply. Europe’s direct exposure is concentrated in LNG and refined products, although Qatar – its primary LNG alternative to Russian pipeline gas – declared force majeure on all exports. The US is relatively better insulated, with domestic shale production at record levels, although prices will remain elevated in line with global benchmarks.
Background
The Strait of Hormuz handled an estimated 20 million barrels per day of crude and product flows before the war. Bypass capacity is limited, with Saudi Arabia’s east-west pipeline to Yanbu carrying around 4 to 5 million barrels per day and is near maximum, and the Red Sea route it feeds faces the risk of attacks by Yemen’s Iranian-allied Huthis. Iranian attacks on Gulf energy infrastructure, targeting Ras Tanura in Saudi Arabia, the Ruwais complex in the UAE, and Ras Laffan in Qatar, have compounded the supply shock. Cumulative Middle Eastern supply losses reached 430 million barrels by 10 April, with Saudi output down from 10.1 million barrels per day in February to approximately 6 million barrels per day today.
Risk outlook
Negotiations to end the war and reopen Hormuz are ongoing. A continuing fragile stalemate, which is the most likely outcome, implies physical supply constraint and upward pressure on both physical and futures prices as the paper-physical divergence closes. Full re-escalation, whether from resumed hostilities or further attacks on commercial shipping, could reduce bypass capacity. Even a genuine diplomatic settlement would not constitute an immediate resolution, as full restoration of Hormuz flows would take months, strategic reserves are down, and infrastructure repair at Ras Laffan alone is estimated at three to five years. The physical market has been pricing that reality for weeks, but futures markets are yet to.