Global energy markets are on edge as the potential for a prolonged closure of the Strait of Hormuz threatens to push crude oil prices back into triple digits.
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Oil Prices Climb Past $95 as Hormuz Closure Threatens Major Supply Shock
Brent crude futures jumped over 7% to settle near $97 a barrel after Iran reversed its decision to reopen the Strait of Hormuz, a critical chokepoint for a fifth of the world's oil supply, heightening fears of a major energy crisis ahead of a looming ceasefire deadline between the U.S. and Iran.
"Each day that passes we literally burn through around 13 million barrels of crude and oil products," Max Layton, global head of commodities research at Citi, wrote in a note, highlighting the rapid depletion of global inventories.
The sudden reversal sent West Texas Intermediate crude up 7% to $90.33. The move followed a brief dip in prices after Iran announced a reopening, which had sent Brent down 10% to $90 a barrel. The closure puts roughly 13 million bpd of oil supply offline, according to the International Energy Agency.
The market now faces a tense week, with a U.S.-Iran ceasefire set to expire on Wednesday. Citi analysts project that a prolonged disruption of eight to nine weeks could push oil to $130 per barrel, a scenario that would severely strain the global economy by fueling inflation and increasing costs for businesses and consumers.
Ceasefire Deadline Looms
The primary driver of the market's anxiety is the impending expiration of a two-week ceasefire between the U.S. and Iran. President Donald Trump has stated he will not extend the truce if a peace agreement is not reached, and has threatened to resume bombing. While a U.S. delegation is headed to Pakistan for another round of talks, Iran has not publicly confirmed its attendance, and its negotiators have stated they are "far from a final agreement."
The situation escalated over the weekend when the U.S. Navy seized an Iranian-flagged vessel attempting to violate the American naval blockade of Iranian ports. Iran's military has warned of retaliation, increasing the risk of further military confrontation that could keep the strait closed for an extended period.
Scenarios for a Supply Shock
The global oil market's stability now hinges on the outcome of these negotiations. Citi has outlined three potential scenarios:
- Best Case: A ceasefire extension is signed, and flows through the strait gradually resume, reaching pre-disruption levels by the end of June. In this case, Brent would likely average $95 a barrel in the second quarter before falling.
- Intermediate Case: If the disruption continues for another month, losses could rise to 1.3 billion barrels, pushing oil prices to $110 per barrel in the second quarter.
- Worst Case: A disruption lasting eight to nine weeks from April 20 would imply losses of approximately 1.7 billion barrels, pushing crude inventories to record lows and sustaining oil prices around $130 per barrel into the third quarter.
Even in the best-case scenario, it will take months for production to normalize. Persian Gulf producers, who have had to cut output by an estimated 6% due to a lack of storage, may need up to seven months to restart wells and restore pre-war production levels, according to industry estimates. This ensures that the world will face a supply shortfall long after any potential peace deal is signed.
This article is for informational purposes only and does not constitute investment advice.
[1] Citi spells out 3 scenarios for the Strait of Hormuz — and where oil prices would go in each - CNBC[2] Brent Crude Dipped Below $100. Don't Bet on It Staying There.[3] Trump Says He Expects to Resume Bombing Iran. Here's What That Means for Oil Prices.[4] Is crude heading back to $100? Crypto traders drive $500M weekend Hyperliquid oil bets over Strait...[5] Oil prices rise after Iran restricts access to Strait of Hormuz and ceasefire nears expiration[6] Crude Oil Prices Climb as US-Iran Ceasefire Set to Expire on Wednesday[7] Global energy markets are on the verge of a disaster[8] A timeline of how the Iran war shook oil prices — and what comes next[9] Unprecedented Energy Crisis: The Fallout from the Iran War and Its Global Implications[10] India slips to sixth-largest economy in IMF list due to weakening rupee, Iran war impact[11] IMF downgrade signals rising economic risks for South African businesses
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