Khan Capital | March 2026
Key Takeaways
- The Strait of Hormuz closure has removed approximately 20% of global oil supply, driving Brent crude from $70 to a peak of $126, in what the IEA has called “the largest supply disruption in the history of the global oil market.”
- The crisis extends well beyond oil: LNG, fertilisers, aluminium, and refined fuels are all affected, with up to 30% of global fertiliser exports transiting the strait.
- Destruction of Gulf refining infrastructure (30-40% of capacity damaged) means elevated prices and supply constraints will persist even after the strait reopens.
- The IEA’s record 400-million-barrel SPR release buys time but covers only about one-quarter of the supply gap; the Dallas Fed estimates a one-quarter closure would cut global GDP growth by 2.9 annualised percentage points.
- Investors may wish to position for a stagflationary impulse across asset classes, with particular attention to energy equities, defence stocks, gold, agricultural commodities, and the differentiation within emerging market credits.
Part of: The 2026 Iran Crisis — Khan Capital’s hub on the 2026 Iran crisis and oil shock.
For decades, the Strait of Hormuz has been the single most consequential chokepoint in global energy markets: a narrow passage of roughly 21 miles at its tightest, through which one-fifth of the world’s oil and a significant share of its liquefied natural gas flow daily. Geopolitical strategists have long modelled the consequences of its closure. Now, in March 2026, those models are being tested against reality, and the results are proving more severe than most anticipated.
Brent crude has surged from approximately $70 per barrel before the conflict to around $119, a move of nearly 70% in a matter of weeks. LNG prices are climbing toward levels not seen since the depths of the 2022 European energy crisis. Urea, a critical agricultural input, has risen 50% since the conflict began. The question confronting markets is no longer whether the Strait can be closed, but how long it stays closed, and what the cascading economic consequences will be.
| Commodity / Metric | Pre-War Level | Crisis Peak | Current (~Mid-March) |
|---|---|---|---|
| Brent Crude | ~$70/bbl | $126/bbl (Mar 8) | ~$100-107/bbl |
| WTI Crude | ~$66/bbl | ~$120/bbl | ~$95/bbl |
| Supply Disruption | 0 | ~10m bbl/day cut | 20% of global supply offline |
| Strait Traffic | ~20m bbl/day | Near zero | ~1/5 of normal |
| IEA SPR Release | n/a | 400m barrels (record) | US: 172m of total |
| Urea (Fertiliser) | Baseline | +50% | Sustained elevation |
| EU Gas Prices | Baseline | +70% | Near 2022 crisis levels |
The Trigger: From Operation Epic Fury to Maritime Shutdown
The Strait of Hormuz crisis did not materialise overnight. Its roots trace back through the failed nuclear negotiations in Geneva, the 12-day Israeli-Iranian air conflict in mid-2025, and the broader deterioration of US-Iran relations under the Trump administration’s maximum pressure doctrine.
The immediate catalyst was the launch of US-Israeli strikes against Iran on 28 February 2026 (Operation Epic Fury), a military campaign targeting Iran’s nuclear and military infrastructure. Tehran’s response was swift and asymmetric: rather than engaging in a conventional military confrontation it could not win, Iran leveraged its geographic control over the Strait of Hormuz to impose maximum economic pain on the coalition and its allies.
By early March, the Islamic Revolutionary Guard Corps had begun attacking commercial vessels transiting the strait. As of mid-March, Iran had conducted at least 21 confirmed attacks on merchant ships, damaging five tankers, killing two personnel, and stranding over 150 vessels in the surrounding waters. The effect was immediate and dramatic. Tanker traffic through the strait dropped first by approximately 70%, then to near zero as commercial operators, major oil companies, and insurers withdrew from the corridor.
The Supply Shock: Anatomy of a 20% Disruption
The scale of supply disruption is extraordinary by any historical comparison. The IEA has characterised this as “the largest supply disruption in the history of the global oil market.” The closure has removed approximately 10 million barrels per day of oil production from global markets, equivalent to roughly 20% of global supply. This dwarfs the supply disruptions caused by the 1973 Arab oil embargo, the 1979 Iranian Revolution, or even the 1990 Gulf War.
The mechanics of the disruption extend beyond simple transit blockage. As local storage capacity in Gulf states has rapidly filled, producers including Iraq and Kuwait have been forced to curtail production, lacking the ability to export or store additional output. Pipeline alternatives offer only partial relief. The East-West pipeline crossing Saudi Arabia and a handful of other overland routes can carry some volume, but their combined capacity falls far short of replacing seaborne flows.
The damage to Gulf refining infrastructure has compounded the supply shock. Iranian retaliatory strikes on 18 March reportedly damaged between 30% and 40% of Gulf oil refining capacity, removing an estimated 11 million barrels per day of refining throughput. IEA chief Fatih Birol warned that “more than 40 Middle East energy assets” have been “severely damaged” and that “April will be much worse than March.”
The Price Response: Beyond the Headline Number
The Brent crude price captures only part of the story. Physical market dislocations are running well ahead of benchmark futures, which continue to embed some probability of a relatively swift resolution. The futures curve is in steep backwardation, reflecting the market’s recognition that physical barrels are scarce now.
Several Wall Street analysts and US government officials have begun modelling scenarios in which oil reaches $200 per barrel. Rystad Energy forecasts that a two-month war would push Brent to $110 by April; a four-month war could spike it to $135 by June. The Dallas Federal Reserve’s modelling suggests that even a one-quarter closure would raise the average WTI price to $98 per barrel and reduce global real GDP growth by an annualised 2.9 percentage points.
The Cascading Effects: Beyond Oil
What distinguishes the 2026 Hormuz crisis from previous oil shocks is the breadth of commodities affected. The strait is not merely an oil chokepoint; it is a critical artery for LNG, fertilisers, aluminium, and refined fuels.
Liquefied Natural Gas: Approximately one-fifth of global LNG supply transits the strait, predominantly from Qatar. Unlike oil, there are virtually no alternative routes to market for Qatari LNG, and strategic stockpiles are minimal. Europe, which receives 12% to 14% of its LNG from Qatar, faces the prospect of surging prices reminiscent of the 2022 crisis.
Fertilisers: The Persian Gulf accounts for roughly 30% to 35% of global urea exports and 20% to 30% of ammonia exports, with up to 30% of internationally traded fertilisers transiting the strait. Unlike oil, there are no coordinated international strategic reserves for fertilisers. The implications for Northern Hemisphere agriculture, with the planting season approaching, are significant.
Aluminium and Metals: Gulf states account for approximately 20% of raw aluminium exports and 8% of global production. Prices have risen, though the impact remains more contained than in energy markets.
The Policy Response: Strategic Reserves and Emergency Measures
The International Energy Agency has coordinated the largest-ever release of strategic petroleum reserves, with 32 member countries unanimously agreeing to release 400 million barrels. The US is leading the effort with 172 million barrels from its Strategic Petroleum Reserve, or 43% of the total. However, the release can only cover approximately one-quarter of the supply gap, and analysts at Bernstein note that the US release of 1.4 million barrels per day “is just 15% of the supply lost due to the Hormuz closure.”
The Trump administration has taken several parallel measures. Sanctions on some Russian and Iranian oil have been temporarily lifted. The US Navy has been deployed to escort tankers, though Energy Secretary Wright acknowledged the Navy is “not ready to escort tankers through the Strait yet.” Diplomatically, Pakistan has hosted discussions aimed at finding a path to reopening the strait.
What the Market Is Getting Wrong
Several aspects of the current crisis remain under-appreciated by markets.
First, the temporal dimension. The destruction of Gulf refining capacity means that even a swift military resolution or diplomatic breakthrough will not restore pre-conflict energy flows for months, potentially years. Markets pricing in a rapid return to normalcy are likely underestimating the persistence of elevated prices.
Second, the fertiliser channel. The agricultural implications are receiving far less attention than the energy impact, but they may prove equally consequential. Disrupted fertiliser supplies during the Northern Hemisphere planting season could cascade into food price inflation in H2 2026.
Third, the LNG dimension. Europe’s exposure to Gulf LNG supply creates a vulnerability that the continent has not fully hedged. The diversion of LNG cargoes to Asian buyers willing to pay premium prices means Europe may face scarcity pricing.
Fourth, the insurance and shipping dislocations. Even after the strait physically reopens, the repricing of risk in maritime insurance, the redeployment of tanker fleets, and the rebuilding of port and refining infrastructure will create friction costs that persist well beyond the headline crisis.
Implications for Investors
Energy equities outside the Gulf region may benefit from elevated prices, but investors should distinguish between producers with secure supply routes and those exposed to the disruption. US shale producers and Canadian oil sands operators are among the clearest beneficiaries.
Defence and security stocks have rallied sharply and may sustain elevated valuations as governments accelerate spending in response to the crisis.
Gold and safe havens are performing their traditional role. The combination of geopolitical risk, inflation expectations, and potential growth deterioration creates a powerful tailwind for precious metals.
Fixed income markets face competing forces: rising inflation expectations argue for higher yields, while deteriorating growth prospects and flight-to-quality flows argue for lower ones.
Agricultural commodities represent an under-positioned trade. The fertiliser supply disruption creates upside risk to grain and soft commodity prices that the market has not fully discounted.
Emerging market economies dependent on energy imports face the most acute economic stress. Currency weakness, inflation pass-through, and fiscal pressure will differentiate EM credits sharply.
Conclusion: The Price of Strategic Dependence
The 2026 Strait of Hormuz crisis exposes a structural vulnerability that the global economy has acknowledged in theory but never adequately addressed in practice. Despite decades of warnings, the world remains critically dependent on a single maritime chokepoint for a fifth of its energy supply. Whether this crisis proves short-lived or protracted, it will accelerate the repricing of energy security, supply chain resilience, and geopolitical risk across global portfolios.
Sources: IEA Oil Market Report, March 2026, CNBC, CNN, CNBC (IEA SPR), CNBC (IEA Chief), The Hilltop / Dallas Fed, Deloitte Insights
Related Reading
The Strait of Hormuz crisis was triggered by the conflict covered in Operation Epic Fury and Israel-Iran War. For the investor positioning response, see Defence, Energy, and Gold: The 2026 Geopolitical Portfolio. For a previous energy supply shock, see The Energy Crisis: European Gas Prices Hit Record Highs. For the earlier OPEC+ price war that reshaped energy geopolitics, see the Russia-Saudi oil price war. The earlier precedent of infrastructure attacks on Saudi oil facilities is covered in the Abqaiq attack. For how the volatility this created fed through to dealer P&L, see our Q1 2026 bank earnings analysis.
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Related Reading: see the Hormuz blockade entering its second month.
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