Report warns Hormuz closure poses single greatest threat to global energy markets

May 24 ------ A prolonged closure of the Strait of Hormuz risks the single greatest global energy supply shock in decades, according to a new report from Wood Mackenzie.

As highlighted in the report “Strait Talking: Iran War Scenarios and the Future of Energy”, more than 11 million barrels per day (b/d) of Gulf crude and condensate production is currently curtailed. Meanwhile, over 80 million tons per annum (Mtpa) of LNG supply, equivalent to around 20% of global supply, remains inaccessible to global markets. Wood Mackenzie has shared three distinct scenarios:

• Quick peace

• Summer settlement and

• Extended disruption

Each scenario offers a different timeline for ending the conflict and reopening the Strait and assesses the potential impact on oil and gas supply, prices, energy demand and the broader global economy. "The Strait of Hormuz is the most critical chokepoint in global energy markets, and a prolonged closure would become far more than an energy crisis. The longer disruption persists, the greater the impact on energy prices, industrial activity, trade flows and global economic growth." said Peter Martin, Head of Economics at Wood Mackenzie.

On the scenario of an extended disruption, the Strait remains largely closed through the end of 2026, with recurring tensions triggering periods of renewed conflict and sustained supply disruption. Wood Mackenzie’s analysis indicates:

• Brent crude prices could approach US$200/bbl by end-2026, despite global oil demand falling by 6 million b/d year-on-year in H2 2026

• More than 11 million b/d of crude and condensate production remains shut in and global oil inventories continue to decline. Diesel and jet fuel prices could rise towards US$300/bbl in major refining centers by year end

• The global economy could contract by as much as 0.4% in 2026, marking the third global recession this century, with significant economic scarring

• Oil and gas importing countries could intensify efforts to reduce their import dependence by aggressively pursuing faster electrification

The regional economic impact would be severe and uneven. The Middle East could see GDP contract by 10.7% in 2026, while EU27 GDP declines by 1.5% in 2026 and 0.5% in 2027. US GDP growth would fall below 1% in both years, while China’s GDP growth slows to 3% in 2026.

LNG market faces prolonged disruption and structural change

The report finds the global LNG market faces varying degrees of disruption under each of the three scenarios. Even under Quick Peace, LNG markets remain tight through summer 2027 as Gulf export facilities recover gradually and construction delays slow the next wave of supply growth from the region.

A major global LNG expansion remains underway, with supply expected to increase by around 200 Mtpa by 2031, roughly 50% above current levels. The anticipated oversupply is delayed rather than eliminated.

Wood Mackenzie expects US LNG cargo cancellations may eventually be required to rebalance the market, with European TTF prices in the early 2030s almost half of 2026 levels of around US$14/mmbtu. Prices then stage a recovery through to 2035.

Under the Extended Disruption scenario, the market outlook becomes significantly more severe. Some of the Gulf region’s existing 85 Mtpa of LNG supply could be permanently lost, while around 75 Mtpa of capacity currently under construction faces multi-year delays. As a result, global LNG supply could be on average 70 Mtpa lower than expected before the conflict.

A reshaped global energy landscape

The war raises potentially significant risks for oil and LNG demand beyond 2030. Governments and producers have a range of options in response.

• Gulf oil and gas producers: the region will remain a critical source of oil and gas for the foreseeable future. Producing countries will seek to mitigate risks to future supply. Developing infrastructure for oil exports to bypass the Strait of Hormuz and investment in storage closer to demand centers will increase energy security and prove lower cost than aggressive energy independence for importers.

• International oil and gas companies’ Middle East strategies: as other basins mature, including the Permian, the Middle East will remain increasingly crucial to the strategies of the Majors and larger Independents. Alternative egress routes would support investment.

• Oil and gas producers outside the Gulf: low-cost producers in stable regions could expand output. LNG producers will look to capitalize on buyer interest in supply diversification.

• Refiners in oil-importing countries: refiners face a tougher market outlook as long-term oil demand weakens in import-dependent markets.

• Cleantech manufacturers: as electrification accelerates, renewable and nuclear manufacturers and electric vehicle (EV), battery and charging infrastructure producers stand to gain. But rapid electrification requires massive investment in grid development, with major cost implications.

"The consequences of an extended disruption would extend well beyond energy markets. It would test the resilience of global trade, industrial supply chains and economic growth simultaneously, reinforcing the urgency of achieving a resolution." Martin concluded.

Source: safety4sea.com