The following piece originally appeared as “Hormuz and the Geopolitics of Energy” on ORF Middle East’s Expert Speaks.
By: Mannat Jaspal
Brent crude oil prices have surged back above US$100 per barrel as of March 17, 2026. The historic emergency of 400 million barrels oil announcement by the International Energy Agency (IEA) has done little to stabilize markets or reassure investors. While the United States’ crude oil prices have also gained more than 40%, natural gas prices have surged even more dramatically, with the Asian liquefied natural gas (LNG) spot prices and European futures nearly doubling since the disruptions began at the Strait of Hormuz.
The United States-Israel-Iran war and the concomitant blockage of the Strait are sending ripple effects both across and beyond the region – disrupting security, resource flows, and global growth expectations. Energy underpins every sector of the global economy, and the impacts are already palpable across food prices, commodity markets, and stock exchanges. The stakes are clearly enormous: the narrow passageway carries one-fifth of global oil and natural gas supplies.
Weaponization of Transportation Channels and Production Sites
Attacks on energy infrastructure have compounded the crises: Iranian missiles and drones targeting neighboring states in West Asia have damaged crucial energy assets including production facilities, refineries, and ports. Saudi Arabia’s largest Ras Tanura refinery, Kuwait’s Mina Al Ahmadi refinery, Qatar’s Ras Laffan LNG complex, and Iraq’s Rumaila production facility have suspended production. In other cases, storage tanks have reached limits, forcing production cuts. Ports including Fujairah and Jebel Ai in the UAE, Duqm and Salalah in Oman, and Basrah in Iraq – have also stalled operations. Both transportation channels and production sources are increasingly subject to weaponization.
The U.S. restraint in striking oil production facilities during their attack on Kharg Island – Iran’s primary oil export hub – appears intended to avoid further disruptions and exponential price rises. Iran, however, is betting on just the opposite: threatening oil prices above US$200 per barrel to pressure Washington and Tel Aviv to back down. Recent remarks, by Iran’s new Supreme Leader, Mojtaba Khamenei, on keeping the Strait of Hormuz closed signals the willingness to escalate that pressure. Any mitigating measures taken now may cushion the immediate shock. These interventions, however, are likely to prove temporary at best and insufficient at worst if the conflict persists.
Between Market Responses and Producer Agility
The global oil surplus of 3.5 million barrels per day has thus far cushioned the immediate shock of the crises, according to the IEA. That surplus is, however, depleting fast threatening stagflation pressures worldwide. Markets react to risk well before shortages materialize. Some analysts predict that if the conflict persists into April, notwithstanding G7 declarations to release oil reserves, crude prices can exceed their 2008 peak of US$147 per barrel.
Besides price volatility, the conflict is also straining the physical movement of energy supplies. Shipping has become another bottleneck – the numbers of vessels crossing the Strait has declined from 100 a day to almost negligible. International insurers suspended war coverage with premiums rising to almost 400% from 0.25% of a vessel’s value. Most ships remain stranded outside the Strait while others are rerouting around the Cape of Good Hope in Africa, adding significantly to travel time and freight costs. United States promise of naval support and US$20 billion reinsurance scheme is yet to deliver tangible outcomes – and is unlikely to do so quickly.
Producer responses remain limited as the Iranian threat to regional energy infrastructure looms large. Middle Eastern energy producers are scrambling to cut losses and reroute exports: Saudi Arabia’s Aramco will redirect oil using its East-West pipeline to the Yanbu port in the Red Sea, and utilize Egypt’s Sumed pipeline to access the Mediterranean and the Bab Al Mandab for shipments to Asia. These measures will sustain 70% of its normal crude shipments. Growing risks of Houthi forces targeting shipping routes at the Red Sea could further complicate these efforts. Iraq will also increasingly rely on its northern pipelines. UAE’s Fujairah and Oman’s Duqm ports – which bypass the chokepoint by opening directly onto the Arabian Sea – offer limited relief after Iran targeted these strategic alternatives.
Qatar lacks comparable alternate routes entirely. The situation is more severe within gas markets which lack the same degree of supply flexibility as oil due to limited storage options. The United States and Australia, the largest LNG producers, have little spare capacity to compensate for the sudden loss of Qatari exports.
Winners and Losers
Energy shocks disproportionately affect economies. Nearly 70% of the crude oil shipped through this marvel of geology is destined for China, India, Japan, and South Korea.
East Asian countries are particularly vulnerable. While Japan (254 days) and South Korea (210 days) maintain significant oil reserves, LNG inventories are modest. South Korea and Thailand have already announced fuel price caps. While countries such as Indonesia can partially switch to coal, Vietnam and Singapore lack comparable domestic energy buffers.
Europe, though less dependent on Gulf LNG, is nevertheless witnessing high domestic gas prices – up by almost percent since the onset of the conflict largely due to spot market volatility. Approximately 30% of Europe’s jet fuel supply originates in or transits through the Strait further complicating efforts to transition away from Russian energy. Governments may need to consider the unpopular option of cutting electricity taxes and levies – potentially funded by revenues from the Emissions Trading System, in order to absorb the price shocks.
India, the second largest energy consumer in Asia after China, faces a more complex challenge – the country imports 60% LNG and 40% crude oil from the Middle East and has limited petroleum reserves at its disposal. In response, India has invoked the Essential Commodities Act, 1995, diverting the supply of natural gas and LNG to priority areas, such as domestic cooking, pipeline compressor fuel, and transport. The country will have to rely on fuel switching – towards coal, kerosene, biomass domestically – while increasing imports of discounted Russian crude. Tehran’s recent decision to allow Indian flagged tankers to pass through the Strait provides some relief and represents a notable success for New Delhi’s Middle East diplomacy.
China, on the other hand appears to be prepared with roughly six months of oil stockpiles. The numbers are revealing: while China imports half of its crude oil and almost one-third of its LNG from the region, yet utilizes 6.6% of Hormuz oil for overall energy consumption. Most of these reserves are held in onshore and floating storage as contingency buffer. China’s broader energy transition also helps cushion the impact. As one of world’s leading electro state, renewables accounted for 80% of China’s new electricity demand in 2024. More than half of new passenger vehicle sales in the country are now new-energy vehicles and electric cars are displacing over one million barrels per day of implied oil demand. If this crisis was to accelerate the energy transition agenda, China’s green manufacturing dominance will only amplify. For now – between petroleum reserves, domestic coal supplies, and renewables – China’s short-term vulnerabilities appear manageable.
Russia, in turn, may emerge as a hedging beneficiary as it rushes to fill supply gaps. Higher prices and tighter markets will increase the demand for Russian crude potentially weakening the impact of existing sanctions. President Trump’s sanction waivers for Russian crude currently at sea mark a significant win for Moscow. However, strained by legacy sanctions and years of under-investments in technology and capacity expansion, Moscow may only realize short-term benefits. Russia lacks the expanded capacity to become a swing producer or compensate for lost volumes. The same is true for other non-Gulf oil producers as well. The elasticity of the supplies remains limited – volumes cannot increase in the short term – though suppliers stand to benefit by raising prices for competing demands between Europe and Asia.
Finally, the United States, which hoped to remain insulated due to its self-sufficiency in oil and gas, will also face inflationary pressures at home given the global nature of energy. U.S. petrol prices surged to their highest under the Trump administration. President Trump’s mixed signals have further prompted volatility – the price of West Texas Intermediate (WTI) crude oil reached a peak of US$119.43 per barrel. His recent remarks suggesting that higher oil prices are positive for America echo his classic “Drill Baby Drill” rhetoric. One cannot help but wonder whether the timing of the attack on Iran was strategic – occurring shortly after America’s seizure of Venezuelan energy assets – as President Trump seeks to potentially flood global markets with American oil and LNG, and American-controlled Venezuelan crude.
It is clear that while some countries may reap windfall gains in the short term, in the long run, all will be worse off. The only real winners will be those that draw lessons from the crisis and move quickly to build robust energy security frameworks – one that integrate securitization, resilience, and transition planning to safeguard the present and insulate the future.
Mannat Jaspal is Director & Fellow of the Climate and Energy Program at ORF Middle East.