Strait of Hormuz Blockade Risks Sending Oil Prices Toward $110
Tehran, Saturday, 28 February 2026.
With 20% of global oil transiting this choke point, analysts warn a potential disruption could drive crude prices to $110, threatening critical supply chains worldwide.
Market Volatility Following Military Escalation
Global energy markets have entered a period of acute uncertainty following confirmed military strikes by Israel on Iranian targets, a move that has sharply increased the probability of retaliatory measures in the Persian Gulf [2]. This escalation follows the failure of diplomatic talks to curb Tehran’s nuclear program, prompting U.S. President Donald Trump to authorize attacks in coordination with regional allies [1]. The immediate focus for financial analysts is the Strait of Hormuz, a critical maritime chokepoint responsible for the transit of approximately 20% of the world’s daily oil consumption [1]. While crude prices have already climbed roughly 10% since the United States began positioning military assets in the region, the market is now pricing in the risk that Tehran may leverage its geographical advantage to disrupt global supply chains [2].
The Arithmetic of a Supply Shock
Financial institutions are currently stress-testing scenarios where the conflict broadens to impact oil flows directly. A report by Equirus Securities highlights that Iran’s production of nearly 3.3 million barrels per day accounts for roughly 3% of global supply [2]. Applying a standard sensitivity analysis which assumes a 3% to 5% price response for every 1% supply shock, a disruption of Iranian barrels alone could trigger a price surge of 9% to 15% [2]. On a base price of $70 per barrel, this mechanical adjustment would add approximately $6 to $11 to the cost of crude [2]. However, the report warns that markets rarely react mechanically to war; a structural geopolitical premium could add an additional $20 to $40 per barrel, potentially driving prices into the $95 to $110 range [2]. Other estimates are even more bearish, suggesting a full closure could see prices surge from a lower baseline of $64 to between $120 and $130 per barrel [3].
Asymmetric Warfare and Logistics
The threat to the Strait of Hormuz, a narrow waterway only 34 kilometers wide at its narrowest point, is not limited to a formal naval blockade [3]. Analysts at the Crisis Group note that Tehran possesses multiple asymmetric options short of a declared closure, including stepped-up harassment of tankers, drone overflights, and boarding incidents designed to spike insurance premiums and freight costs [2]. Since 1971, Iran has positioned significant assets in the area, including drone swarms, over 20 mini-submarines, and approximately 6,000 naval mines [3]. This week, the Islamic Revolutionary Guard Corps (IRGC) reportedly conducted missile strike exercises on a mock-up of the al-Dhafra air base in the UAE and briefly closed the Strait for naval drills, signaling their operational readiness [4]. Former U.S. Navy Commander Vice-Admiral Kevin Donegan cautioned that while Iran may be militarily weaker than in previous decades, its ability to inflict economic havoc remains potent [4].
Asian Markets at Strategic Risk
While the geopolitical standoff involves Western powers, the economic fallout poses a disproportionate threat to Asian economies. Data indicates that 84% of the oil and liquefied natural gas (LNG) traversing the Strait is bound for Asian markets [3]. China, which relies on the Strait for approximately 25% of its total energy supply, has reportedly deepened its engagement with Tehran, with surveillance vessels providing real-time targeting data [3]. Similarly, India remains highly vulnerable, relying on this route for 50% of its crude oil imports and 60% of its LNG imports [5]. The strategic alignment is further complicated by reports that China is set to sell CM-302 supersonic cruise missiles to Iran, reinforcing an “Iron Triangle” of Iran, Russia, and China aimed at reshaping regional power dynamics [4][3].
Diplomatic Deadlines and Structural Premiums
The timeline for de-escalation appears tight, with President Trump reportedly offering Iran a 15-day window to reach a deal, a deadline set to expire on the holiday of Purim [4]. Marco Rubio, serving as Secretary of State, emphasized on Thursday, February 26, that the Iranian refusal to discuss ballistic missile programs remains a significant obstacle to progress [4]. In the interim, the market is forced to price in a structural risk premium. While global strategic reserves could buffer a supply shock for approximately two months, alternative pipelines through Saudi Arabia and the UAE can only divert about 1.27 million cubic meters a day—insufficient to offset the Strait’s volume of 3.18 million cubic meters [3]. Until supply fundamentals reassert themselves or diplomatic breakthroughs occur, the volatility in energy futures is expected to persist [2].