U.S.-Iran Tensions Escalate, Strait of Hormuz Becomes Key Oil Price Disruption Variable

Ask AI · What are the true motives behind Iran blocking the Strait of Hormuz?

Recently, the US-Iran situation has become very volatile, and many investors are concerned about their holdings in gold and oil sectors. How should we respond to such high volatility? Today, we’ll share an update on the current US-Iran conflict, as well as short-term and medium- to long-term trends for gold and oil.

The conflict between the US and Iran continues, with fighting spilling over into the region, causing intense regional chain reactions and casualties. During this process, global oil prices and shipping costs have surged sharply, and financial market volatility has increased significantly. The most critical point is the Strait of Hormuz. This strait is a vital shipping route for crude oil and refined petroleum products. Located between Iran and the Arabian Peninsula, it appears narrow but is the only natural outlet for the Persian Gulf. All ships entering or leaving the Persian Gulf must pass through here, making its geographic importance irreplaceable. The strait does not belong to Iran alone, nor is it under a single sovereign country; sovereignty is divided among multiple nations but has long been controlled by external forces. Currently, nearly one-fifth of global fuel transportation passes through this strait, and its traffic volume is a key indicator for investors and markets.

Source: EIA

Data shows that the number of ships passing through the strait has dropped significantly. The core reason is not Iran officially declaring the closure of the strait, but rather multiple Iranian insurance companies withdrawing war risk coverage. The International Group of P&I Clubs originally provided insurance for oil tankers, but now more than half have canceled their policies. Without war insurance, commercial shipping becomes practically impossible. Whether Iran can physically block the strait is less relevant; the key issue is that shipowners and traders are unwilling to send uninsured vessels into conflict zones, risking huge losses. In other words, no crew, shipowners, or traders are willing to take on this risk. As a result, the strait is effectively under blockade in the short term, preventing crude oil from being exported.

Source: Lloyd’s List

If the strait remains blocked, where will oil prices go, and how high could they rise? Historical data suggests that Iran’s crude oil production in 2025 will be about 3 million barrels per day, accounting for 4-5% of global supply. About 20 million barrels of Middle Eastern crude and refined products are shipped daily through the Strait of Hormuz, of which only over 4 million barrels can be transported via pipelines as alternatives. Currently, these alternative channels are not fully operational, so short-term oil transportation faces real issues. Goldman Sachs predicts that oil prices will risk rising significantly.

Deutsche Bank offers three specific scenarios corresponding to oil prices of $70, $80–$100, and $200 per barrel. Scenario one: Iran agrees to a ceasefire and announces the reopening of the strait. Market disruptions would quickly subside, and with OPEC’s current trend of reducing and increasing production, Brent crude could fall back to around $70. Scenario two: Iran insists on closing the strait, with missile and drone attacks on passing ships but no mine-laying or high-intensity assaults. Some ships might take risks to pass or pay higher premiums for passage. In this case, oil prices could range from $80 to $100 per barrel. Scenario three: Iran conducts large-scale mine-laying, launches anti-ship missiles, and uses heavier equipment to impose a de facto blockade. Mine-clearing is slow and difficult, likely causing shipowners to almost completely cease passage, halting regional oil exports. Deutsche Bank estimates prices could surge to $200 per barrel under this scenario.

Currently, oil prices are mainly driven by geopolitical conflicts. Recent statements from Iran and the US remain focal points for capital markets. From the current situation, the market resembles the second scenario: ships face sporadic attacks, shipping companies suspend operations, but the strait is not fully closed. Additionally, OPEC announced plans to increase daily production by 200,000 barrels in April, which could offset some negative impacts of a potential blockade but cannot fully eliminate concerns over supply disruptions.

JPMorgan estimates that, combining Middle Eastern oil producers’ onshore and offshore storage capacities and dividing by their daily production, these countries would be forced to halt production after about 25 days of continuous output. The reason is that crude oil cannot be exported, and storage tanks are a limiting factor. If these countries fill their storage and are forced to cut production, it could have a significant long-term impact on oil prices.

Bank of America offers a more macro perspective, suggesting that the impact of this geopolitical shock depends not only on the duration of the conflict but also on the long-term strategic game between the US and Iran over energy and critical mineral access. UBS believes that, despite OPEC’s slight increase in production, the key variable remains the risk of war over the Strait of Hormuz. Even if OPEC increases output, the additional oil will struggle to reach markets if the strait remains closed, and the longer the closure persists, the higher the risk premium on oil prices.

These are the views shared by foreign institutions.

Whether the Strait of Hormuz will be permanently closed remains unpredictable; geopolitical games are inherently uncertain. Historically, the strait has never been fully and long-term closed, but strategic and geopolitical tensions around this region have always had a huge impact on international oil prices and the global economy. For example, during the Iran-Iraq war, Iran repeatedly threatened to block the strait, and in 1987, it laid mines and attacked passing oil tankers. At that time, the strait was called the “Death Corridor,” and Iran’s actions caused oil prices to spike sharply. Another example is in 2018, when the US announced withdrawal from the Iran nuclear deal and reimposed sanctions. Iran strongly stated it could disrupt shipping through the strait. In July of that year, Iran seized a British oil tanker, which also pushed oil prices higher. The most recent case was in June 2025, when the US announced plans to strike Iran’s nuclear facilities. Iran’s officials then stated that their parliament had reached a consensus to close the strait. Whether the strait was actually closed or not, oil prices surged at that time.

Analyzing the current situation, whether Iran has enough motivation to block the strait depends not only on its subjective will but also on its actual capacity and the potential chain reactions. Many analysts believe that if Iran blocks the strait, it would harm its own fiscal revenue and also impact neighboring oil-producing countries, possibly leading to a situation of “being isolated and unsupported.” Disrupting shipping, finance, and high-tech industries could trigger regional instability and inflation risks from rising oil prices, which would deepen divisions within the US and among global capital markets. Therefore, Iran does have motivation to take further action.

We recommend everyone stay closely tuned to the evolving situation. There are also alternative oil transportation routes, such as Saudi Arabia’s east-west pipeline and the UAE’s Abu Dhabi pipeline. These pipelines have some capacity but are limited and cannot fully replace the Strait of Hormuz, providing only minor hedging effects. Overall, the risks of supply and transportation disruptions in the oil market remain high.

If the strait remains blocked, where will the market go? In the short term, if the blockade persists, energy-importing countries might rush to secure supplies from non-Middle Eastern producers, and some may release strategic reserves to curb sharp price increases. However, these measures are unlikely to match the volume of oil normally shipped through the strait.

In the medium term, the US might deploy naval and air forces, along with other measures, to ensure the strait’s navigation. Under this scenario, limited reopening could help stabilize prices somewhat. If the conflict ends and a ceasefire is achieved, oil prices could spike temporarily due to earlier disruptions and then gradually decline. In an extreme case, if the conflict escalates and even US and allied forces cannot guarantee safe passage, oil prices could continue to soar, as previously discussed.

We can only monitor the latest news and developments to gauge future trends, but the dynamics of war are highly uncertain. From a fundamental perspective, rising oil prices will impact global inflation. According to Goldman Sachs, historically, a 10% increase in oil prices tends to push core CPI up by 4 basis points and overall CPI by 28 basis points. Even short-term straits disputes can slightly dampen US GDP, illustrating their far-reaching effects. If inflation continues to rise, risk assets worldwide are likely to face pressure.

Market expectations currently have significantly lowered hopes for a short-term US-Iran ceasefire. The geopolitical logic now leans toward a prolonged internal struggle. During periods of intense asset rotation and market volatility, geopolitical factors can shift from short-term panic to medium- and long-term signals and disturbances. As a result, forecasts for oil prices and stock indices like the S&P 500 have already incorporated more pessimism.

We do not make subjective predictions but follow trends and market feedback. In summary, the key to analyzing oil price movements is timing. As long as Middle Eastern production capacity remains largely intact, the main market issue is the disruption of oil transportation, and the geopolitical risk premium will react promptly to changes in the regional situation. If future conflicts cause significant damage to Middle Eastern capacity, the impact on oil prices will be even deeper, but we must continue to monitor developments.

In the short term, oil supply gaps driven by geopolitical disturbances are the focus, while in the long term, a fundamental reversal could benefit the market. Gold’s short-term fluctuations do not change its role as a reserve asset, and its long-term value remains solid. Investors might consider gold ETFs like Guotai (518800) and oil ETFs (561360) to capitalize on rising oil prices and hedge against risks.

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