The Wall Street Journal reported that the Strait of Hormuz is close to a full shutdown one week after the U.S.-Iran war began, creating what it described as the most severe energy supply shock since the 1970s. According to estimates cited in the report, Gulf oil production could fall by about 9 million barrels per day by the end of March if the disruption remains in place, or nearly one-tenth of global demand. U.S. oil prices on Sunday moved above $100 a barrel.
Storage pressure is forcing producers to cut output
The Strait of Hormuz handles roughly one-fifth of the world’s oil and liquefied natural gas flows, and at its narrowest point it is only 21 miles wide. The report said tanker traffic through the waterway has dropped to almost zero. That has created an immediate physical problem for producers: wells cannot be shut instantly, while export routes are blocked and storage tanks on land are filling up fast.
On Feb. 28, the day U.S. and Israeli forces struck Iran, DNO Chairman Bijan Mossavar-Rahmani ordered the shutdown of all of the company’s oil wells in Iraq while flying from New York to Oslo. Those fields were among the first to be halted in the conflict. Iraq’s storage facilities then filled up, forcing the OPEC second-largest producer to cut output by more than two-thirds. Kuwait followed as onshore storage neared capacity. On Saturday, Abu Dhabi National Oil Co. signaled that it was slowing production to avoid storage overflows.
Production losses could deepen sharply within days
JPMorgan analyst Natasha Kaneva told the Journal that the Strait of Hormuz has never been closed in recorded history. Her estimate: if the strait is still shut by Friday, Gulf output would be down by more than 4 million barrels a day. If the blockage lasts until the end of March, the supply loss could reach about 9 million barrels a day.
The report added that the few vessels now leaving the strait are mostly carrying Iranian crude. Traders said oil prices could climb even higher if the route does not reopen within days, whether through U.S. naval escorts or shipowners deciding the risk has eased enough to resume passage.
Fertilizer and aluminum markets are also under strain
The disruption is spreading well beyond crude. Large volumes of fertilizer also move through Hormuz and feed agricultural demand across multiple continents. Aluminum prices have jumped to multiyear highs. Smelters in the Middle East have declared force majeure, a legal mechanism that allows suppliers to avoid liability when deliveries cannot be made. Norsk Hydro has already cut capacity in Qatar and warned that a full restart could take six to twelve months.
Energy historian Daniel Yergin told the Journal that, measured by daily supply losses, this may be the largest disruption in world history. If it lasts for weeks, he said, the shock will continue to echo through the global economy.
U.S. has more cushion, while Europe and Asia face sharper exposure
U.S. Energy Secretary Chris Wright said on Fox on Sunday that energy would be flowing through the Strait of Hormuz again soon, and attributed the price spike to fear that the crisis could become prolonged. The Journal noted that the United States has more insulation than it did in the 1970s because oil now makes up a smaller share of GDP and the country is itself a major energy exporter.
Europe and Asia look more exposed. The report said the blockade is already transmitting pressure from oil and gas flows into gasoline and diesel prices, mortgage rates, and even government borrowing costs. For economies that rely heavily on Gulf energy, the impact is no longer theoretical.