The US-Iran war triggers the largest "oil supply disruption" in history, with analysts warning that oil prices' "sky is the limit"

International oil prices have experienced a sharp reversal. The conflict between the US and Iran has led to the blockade of the Strait of Hormuz, triggering the largest-ever oil supply disruption in history, with approximately 20% of global oil transportation affected. On Monday, international oil prices fluctuated wildly, with WTI crude oil experiencing an intraday range of $38, briefly spiking near $120 per barrel.

Subsequently, as major economies discussed releasing strategic oil reserves and Trump signaled a ceasefire, oil prices quickly retreated to around $90 per barrel.

According to CNBC on Monday, Neil Atkinson, former head of the Oil Industry Department at the International Energy Agency, stated that the actual blockade of the Strait of Hormuz is an unprecedented situation in energy markets. He warned:

“Unless the situation quickly reverses, we will face an unprecedented energy crisis that could change the landscape.”

Regarding oil prices, he was blunt:

“There are no precedents to follow now; the trend can only be reasonably speculated, and the sky is the limit (no cap).”

Currently, oil prices remain uncertain, with the US-Iran situation still a key variable hanging over the oil market.

Largest Supply Shock in History: Exceeds All Previous Records

According to energy consulting firm Rapidan Energy, this supply disruption exceeds any previous oil crisis in history, more than doubling the previous record.

Rapidan analyst noted that the largest supply shock before this occurred during the Suez Canal crisis in 1956, when the UK, France, and Israel invaded the Sinai Peninsula, affecting about 10% of global oil supply. The impact of the Strait of Hormuz blockade is close to three times that of the 1973 Arab oil embargo (which affected about 7% of global supply).

The Strait of Hormuz typically carries about 20% of global oil and natural gas shipments, but since the outbreak of war, transit shipping has almost come to a complete halt, a situation that has persisted for nine days.

No Spare Capacity Available: Market Lacks Effective Buffer

Rapidan analysts emphasize that the fundamental difference between this supply shock and previous crises is that there is almost no idle capacity available globally to deploy. Saudi Arabia and the UAE hold most of the elastic capacity, but due to the blockade of the Strait of Hormuz, these two countries are effectively cut off from the global oil market. They state:

“This conflict not only takes offline the highest proportion of global supply in history but also disrupts the main holders of elastic capacity, resulting in a market with no substantial buffer, and no swing producers able to step in to fill the gap.”

Analysts point out that, in this context, the global oil market will have to rely on significant price increases to curb demand and restore supply-demand balance. The US Strategic Petroleum Reserve currently holds about 415 million barrels, roughly 58% of its statutory maximum capacity of 714 million barrels. Rapidan believes this reserve is “limited and insufficient to fully offset” the supply gap caused by the Hormuz blockade and the trapped supplies in the Persian Gulf.

Production Shutdown Spreading: Multiple Countries Begin Reducing Output

As the situation continues, Middle Eastern oil-producing countries have begun gradually reducing production. According to CNBC, Iraq, Kuwait, and others have started shutting down some capacity. An analyst at Société Générale warned in a Monday report that long-term shutdowns in Middle Eastern countries will “significantly increase” the difficulty of restarting production. He stated:

“The UAE may be the next country facing shutdown risks, with a timeframe possibly within the next five to seven days. Qatar also faces risks, although its oil production is relatively limited, it has significant liquefied natural gas exposure.”

Janiv Shah, Vice President of the Oil Market at Rystad Energy, predicts that if the current situation persists for four months, Brent crude futures could rise to $135 per barrel. In his Monday report, he said:

“Based on current conditions, our forward-looking analysis for the next two months indicates that oil prices will remain above $110 per barrel.”

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