Energy research firm Wood Mackenzie delivered a stark warning on Monday, saying global crude prices could rocket to an unprecedented $200 per barrel if the vital Strait of Hormuz remains closed through the end of the year. The new report warns of a catastrophic scenario of “extended disruption,” echoing earlier warnings from Iranian military officials that regional escalation would result in a historic energy shock.
The strategic waterway is the world’s most important maritime energy choke point. The outbreak of conflict earlier this year has already choked more than 11 million barrels per day of Gulf crude and condensate production for a prolonged closure. Also, more than 80 million tonnes of yearly liquefied natural gas (LNG) supply, or about 20% of the global market, is completely off the table. “Longer term, a shutdown is not just a local energy crisis,” market analysts stress. “This could be a destabilising factor for global trade and industrial supply chains all at once.”
Wood Mackenzie’s analysis outlines three possible ways out of the crisis, from a “quick peace” deal by June to a late-summer resolution. But the worst case scenario is that the shipping lane will remain blocked through December because of repeated military flare-ups. Brent crude could hit $200 a barrel by year-end, despite soaring costs driving a steep drop in world demand here.
The economic impact of this worst-case scenario would be severe, with global GDP declining by as much as 0.4% and it would be only the third global recession in this century. Diplomatic efforts continue but oil futures have rebounded above $104 a barrel as skeptical investors weigh continued disagreement over maritime controls and stability in the region.
