How High Could Oil Prices Get with Strait of Hormuz Closure?

Key Points:

• The closure of the Strait of Hormuz is causing a significant global oil supply shortfall of about 9 million barrels per day, exceeding the combined consumption of major European countries, leading to rising prices and demand reductions, especially in Asia.
• Emergency measures such as stockpile releases, US sanctions waivers on Russian and Iranian oil, and pipeline rerouting by Gulf countries have provided temporary relief, but these interventions are finite and insufficient to prevent a potential surge in oil prices to as high as $200 a barrel.
• Liquefied natural gas (LNG) supply is even more vulnerable due to the lack of alternative routes and limited stockpiles, with recent missile damage to Qatar's LNG plant further exacerbating risks to long-term supply.
• Rising fuel and petrochemical prices are already impacting global inflation and economic growth, with the US and euro area experiencing notable inflation increases; prolonged closure of the strait could trigger a stagflationary shock affecting central bank policies and political outcomes.
• The crisis is forcing demand destruction through rationing and hoarding in affected regions, with some countries restricting exports and consumers reducing usage, signaling a painful and rapid energy transition driven by supply constraints rather than policy shifts.