Energy and Its Prices at the Mercy of the Strait of Hormuz
As soon as the United States of America and Iran failed to reach an agreement on a peace proposal put forward by Washington, oil prices jumped last Monday (10/5/2026), with Brent crude futures rising by $4.5, or 4.6%, to reach $105.99 a barrel. This comes at a time when the closure of the Strait of Hormuz to maritime navigation continues, albeit partially, causing a sharp drop in oil and gas supplies to global markets.
This is because the Strait of Hormuz is one of the world's most important maritime energy corridors, through which passes around 20% of global consumption of petroleum liquids, and an equivalent share of liquefied natural gas globally (according to data from the US Energy Information Administration, EIA). Any disruption there is reflected in energy prices and supply security, particularly in Asia and Europe, as well as in the global economy, given that the Strait of Hormuz accounts for around 8% of global maritime trade passing through straits (according to the Center for Strategic and International Studies, CSIS).
Despite the major shortage in global energy supplies, oil prices have not crossed the threshold of $120 a barrel since the outbreak of the US-Israeli war on Iran. An increase in US exports by 3.8 million barrels per day, coinciding with China cutting its imports by around 5.5 million barrels per day, offset the supply shortfall by approximately 9.3 million barrels per day, according to a report by Morgan Stanley, though this remains a temporary offset.
Advanced countries' resort to drawing on part of their strategic reserves to make up for the supply shortage also helped prevent dramatic price surges of the kind some experts had predicted. However, the continued closure of the Strait of Hormuz will lead to further depletion of these reserves, which have reached their lowest level in eight years according to the bank Goldman Sachs, and to fresh price increases.
If the pace of withdrawals from strategic reserves continues as it is today, amid ongoing military escalation and the closure of the Strait of Hormuz, concerns will turn into risks threatening the global economy. Goldman Sachs estimated that total global oil inventories are sufficient to cover about one hundred and one (101) days of global demand, and could fall to 98 days by the end of May, in addition to the shortage that will hit the supply of refined petroleum products as a result of the price disparity between futures and spot purchases.
Indeed, the widening price gap between Brent crude futures, or what is known as "Dated Brent" as one of the physical pricing benchmarks, and prompt delivery contracts, which typically range from 10 to 30 days, poses a challenge for medium and small refineries, especially after this spread between the two prices reached an unprecedented historical level in mid-April.
The price of a barrel of Brent in futures contracts stood at around $99, whereas its price under prompt delivery contracts reached around $132. Such a sharp disparity is set to squeeze refinery profit margins and push some refineries to scale back refining operations or delay the delivery of petroleum products while waiting for their market prices to rise, which could lead to a shortage in the supply of these products and drive their prices even higher.
By contrast, the ratings agency Fitch forecast that Brent crude prices would range between $100 and $110 a barrel from May to this coming July if the effective closure of the Strait of Hormuz continues until then, amid the ongoing repercussions of the war on Iran and the disruption of navigation in the Strait of Hormuz for longer than expected, before falling back to around $70 by September as supplies gradually return and markets stabilize.
Fitch also raised its forecasts for European gas prices, affirming that the European market will remain under pressure throughout the current year. This is the result of disrupted liquefied natural gas exports from Qatar through the Strait of Hormuz, in addition to the damage inflicted on gas infrastructure in Qatar and the United Arab Emirates. A continued rise in crude oil and natural gas prices threatens to fuel inflation, increasing the likelihood of interest rate hikes just as the global economy begins to contract.
For its part, the bank Morgan Stanley forecast that oil prices, should the closure of the strait continue until June, would range between $130 and $150 a barrel. Should the Strait of Hormuz reopen, however, the bank estimates that the price of Brent crude in futures contracts, or "Dated Brent", will reach around $110 a barrel during the current quarter, then $100 in the following three months, and $90 between October and December, not straying far in its forecasts from Fitch.
Based on the above, global energy markets appear to be entering a highly sensitive phase, in which geopolitical factors intersect with considerations of supply and demand, strategic reserves, and inflation. If the diplomatic track fails to produce a settlement that reopens the strait and ensures regular navigation, the world could face a new wave of rising energy prices, with all its direct repercussions on inflation rates, economic growth, and living standards, particularly in countries that import energy and are most vulnerable to external shocks.
Translated from Arabic with AI. Read it in Arabic