The war between the United States and Israel on Iran is progressing rapidly. Oil industry executives and analysts believe that if the Strait of Hormuz is not reopened within about the next one to three weeks, the economic and market fallout from the war could escalate rapidly. Still, enough damage may already have been done to cause energy and many other prices to rise for a long time.
These risks are not clearly reflected in some widely watched markets, including stocks in general. Benchmark Brent crude oil price. Emergency measures to cushion the blow of oil supply disruptions have kept oil prices relatively low in the U.S. and European markets. But analysts warn that once these measures wear off in early to mid-April, there will be little the U.S. and other governments can do to prevent energy prices from rising sharply.
Iran attacked nearby civilian ships and energy infrastructure, halting traffic in the narrow Strait of Hormuz. About 20% of the world’s oil supply normally moves through the roughly 160-mile waterway that borders Iran. Some oil has been rerouted through pipelines, but there are limits to how much can be transported. The United States and other countries have released 400 million barrels of crude oil from strategic stockpiles, the largest release ever. The United States has temporarily lifted sanctions on some Russian and Iranian oil to give the market breathing room.
Satellite image shows smoke rising from the UAE’s Fujairah port during the conflict between the United States, Israel, and Iran, March 15, 2026, in Fujairah, United Arab Emirates.
NASA’s worldview | via Reuters
The White House said it believes the president’s military strategy will soon eliminate the Iranian threat and ease price concerns.
But all agree there is no alternative to reopening the Strait. Oil industry executives have been assessing the risk of further disruption from war in recent days.
“There are very real, physical signs of the Strait of Hormuz closing around the world,” Chevron CEO Mike Wirth said Monday at S&P Global’s CERAWeek in Houston. Shell CEO Wael Sawan echoed his words a few days later at an annual gathering of industry executives. Sawan said on Wednesday that the turmoil that started in South Asia “has spread further into Southeast Asia, Northeast Asia, and now into April, into Europe.”
Ben Cahill, director of energy markets and policy at the Center for Energy and Environmental Systems Analysis at the University of Texas at Austin, said the topic of the conference was the difference between so-called paper prices and physical prices.
Comparison of paper price and physical price
Paper prices reflect trading in financial markets and are often the headline oil prices that make headlines. Particularly in Asia, which is the main buyer of crude oil from the Middle East, prices have generally remained lower than the physical delivery price of crude oil.
Brent crude oil futures prices rose 36% from February 27, the last day of trading to March 27, to more than $113 per barrel. But the Dubai price, which tracks physical deliveries from certain Middle Eastern sellers, rose 76% to $126, more than double the paper price. This price has been particularly volatile lately.
One reason paper prices are low is that they regularly drop in response to President Donald Trump’s suggestions that the war may soon end or otherwise deescalate. Traders call this “jaw boning.”
“In that sense, it’s working, and it’s preventing a big reaction from the newspaper market,” Cahill said of Trump’s comments. “But the reality of physical market disruption is very difficult to ignore.”
This disruption is not limited to oil and its impact on US gas prices. The price of liquefied natural gas is also a cause for concern. LNG prices in Japan and South Korea have increased by 48%. The cost of jet fuel is rising, along with more esoteric products such as helium. Without relief, these prices could continue to rise, pushing up global inflation and hurting growth.
market deterioration
The market has deteriorated in recent days. The S&P 500 rose 0.5% on Tuesday, but fell 3.4% from Wednesday to Friday’s close on growing optimism that President Trump will slow plans to attack Iran’s energy infrastructure. The yield on the 10-year Treasury bond followed a similar trajectory. It is now at 4.4%, up about half a percentage point over the war period, reflecting concerns about inflation and expectations that the Fed will not cut interest rates as expected.
The looming possibility of a physical shortage in the oil market appears to be slowing the effectiveness of President Trump’s jawbone. Financial markets reflect the reality that Trump has often been able to avoid worst-case scenarios, including when he attacked Iran’s nuclear program in June. After that, oil futures prices soared, but fell as soon as it became clear that the war would not escalate.
President Trump is currently moving thousands of new troops into the region. He could use them to attack Iran’s Kharg Island oil export facility, cutting off a vital source of revenue for the regime and forcing it to accept a negotiated reopening of the strait. He may attempt to retake the Strait militarily. The system could simply collapse, or there could be any number of outcomes that would restore the flow of energy.
Futures markets reflect these relatively optimistic possibilities at work. But they may not be able to do so forever.
Geopolitical strategist Marko Papic, together with market advisory firm BCA Research, compiled estimates about the sources of supply and their obstacles. Currently, through approximately April 19, the world has lost between 4.5 million and 5 million barrels of oil per day due to the war, Papic estimates, about 5% of global supply. But “that number is likely to double by mid-April, representing the largest loss in oil supply,” he wrote in a research note sent this week.
Papik estimates that the world will hit an oil cliff in mid-April as supplies from the Strategic Oil Reserve and sanctions-exempt Russian and Iranian oil run out. There is no substitute for pumping oil out of the ground and sending it directly to customers.
But there are also questions about the oil industry’s ability to return to supplying its products. Producers in the Middle East have been forced to temporarily shut down wells and halt production because they can’t ship all the crude they’re pumping because they don’t have enough storage to store it. It will take time to reverse that.
Kuwait Oil Corporation CEO Sheikh Nawaf Al Sabah told an energy conference that it could take three to four months to return to full production once the war ends.
If President Trump has his way, that end could come soon.
“The light at the end of the tunnel is getting brighter and clearer,” a White House official said on condition of anonymity. The official disputed the oil industry’s skepticism about the outlook.
“I don’t think oil executives are the geopolitical masterminds,” the official said. The official said the administration is making progress militarily and there are still tools available to supply energy to the market.
“There are also signs that Russia is stepping in to expand exports to fill the gap, so there is still some breathing room here,” the official said.
That breathing room is real, but it appears to be rapidly diminishing. Every day Iran has the desire and ability to threaten ships in the Straits, the world moves closer to severe economic damage.
