War in the Middle East: The Strait of Hormuz & What It Could Mean for Traders

Shipping through the Strait of Hormuz has been severely disrupted following the US and Israeli military strikes on Iran over the last weekend. Vessel traffic through the strait fell by approximately 75% within hours, according to Kpler. Several oil majors and trading houses have paused crude, fuel and LNG shipments.

Ahead of the strike, Brent crude settled at $72.87 per barrel on Friday, 27 February, while gold closed near $5278.20 per ounce. Today, Monday, 2 March, crude oil and Brent crude prices rallied following the ship attacks near the Strait of Hormuz. 

Here’s what traders may want to know about the uncertain week ahead:

TL;DR

• US and Israeli strikes on Iran on Saturday, 28 February triggered retaliatory attacks, with at least three commercial tankers damaged off the coasts of Oman and the UAE. Shipping through the Strait of Hormuz fell roughly 75%.

• The Strait handles approximately 20 million barrels of oil per day, about 20% of global consumption, with no full substitute.

• Bypass pipelines in Saudi Arabia and the UAE cover roughly 2.6 million barrels per day of unused capacity; Qatar's LNG has no bypass.

• US crude oil initially soared more than 10% and Brent surged as much as 13% when trading opened on Sunday; Barclays previously raised its forecast to $100/bbl if disruption persists.

• OPEC+ met on Sunday, 1 March, and agreed to a 206,000 barrel per day increase in production for April.

• Oil prices rallied today, Monday, 2 March.

What Is the Strait of Hormuz and Why Does It Matter?

The Strait of Hormuz is a narrow waterway between Iran and the Musandam Peninsula, shared by Oman and the UAE. It is approximately 167 km long and narrows to about 33 km at its tightest point. According to the US Energy Information Administration, it is the world's most important oil transit chokepoint.

Approximately 20 million barrels per day of crude oil, condensate and petroleum products transit the waterway each year – about 20% of global oil consumption. Around a fifth of global LNG trade also transits through the Strait, mainly from Qatar.

More than 80% of crude transiting the strait is destined for Asian markets, led by China, India, Japan and South Korea.

Historical Precedent: Threats, Disruptions and Market Reactions

The Strait of Hormuz has never been fully closed, but each escalation involving the waterway has produced a measurable market reaction. 

• 1981-1988 (Tanker War): During the Iran-Iraq War, both sides attacked 411 commercial ships, including 239 petroleum tankers. Commercial shipping initially fell 25%, but the broader supply glut of the 1980s meant oil prices actually declined over the period.

• September 2019 (Abqaiq Strikes): Drone and missile strikes on Saudi Aramco's Abqaiq plant knocked out 5.7 million barrels per day. Brent crude rose as much as 19.5% intraday, but Saudi Aramco restored output within two weeks, and prices fell below pre-attack levels.

• June 2025 (Nuclear Strikes): A couple of Israeli airstrikes on Iranian nuclear facilities sent WTI prices shooting up from about $67 to $76 before the fighting was brought under control and prices backed down to pre-attack levels. The strait remained open.

That June 2025 pattern is the one analysts say markets will reference on Monday. The key difference this time is that strait traffic has already fallen approximately 75%.

JP Morgan had previously estimated that an all-out shutdown could send oil to $120-130 a barrel. Bloomberg Economics has calculated that, historically, oil prices have tended to rise by about 4% for every 1% fall in supply. 

Whatever the reason for the current disruption, there is one thing in common to all oil price shocks in modern history. And that is that the length a disruption lasts is what makes all the difference. Short disruptions are characterised by a sharp rise which is soon reversed as supplies are restored to normal, while no sustained closure has ever been tested.

Bypass Infrastructure and Its Limits

Saudi Arabia's East-West Pipeline can carry approximately 5 million barrels per day to the Red Sea. The UAE's ADCOP pipeline carries 1.5-1.8 million barrels per day to Fujairah on the Gulf of Oman. Combined unused capacity is estimated at 2.6 million barrels per day - a fraction of normal strait flows. Qatar's LNG has no pipeline alternative.

What Happened Over the Weekend

On Saturday, 28 February, the US and Israel launched a military campaign, reportedly killing Supreme Leader Ayatollah Ali Khamenei (with Alireza Arafi since named to the interim Leadership Council). In response, Iran launched retaliatory missile strikes toward neighbouring Gulf states hosting US bases. Regional infrastructure is already feeling the contagion, including a precautionary production halt at Iraqi Kurdistan's Kormor gas field and a temporary shutdown at Dubai's Jebel Ali port due to falling debris.

An EU naval mission official told Reuters that vessels received radio warnings from Iran's Revolutionary Guard instructing ships not to pass through the strait. Iran has not formally confirmed the order. The US Navy declared a maritime warning zone across the Persian Gulf, the Gulf of Oman and the Strait of Hormuz.

Kpler reported late Saturday that the vast majority of vessels had either turned back, started to idle or been diverted. Several operators, including Maersk, MSC, Hapag-Lloyd, and CMA CGM, have announced they are suspending transits and ordering ships to take safe shelter. Overnight, at least three tankers, including the Palau-flagged Skylight, were hit and damaged by projectiles. Furthermore, Lloyd's List reports roughly 170 containerships are trapped inside the Strait, exacerbated by massive GPS and AIS jamming affecting over 1,100 ships in the Middle East Gulf, according to Windward.

Factors to Watch This Week

• Sunday OPEC+ reality check: The Voluntary Eight agreed to a 206,000 barrel per day increase in production for April. Raising the production targets is one thing, but the Strait of Hormuz being closed to traffic is another. Furthermore, key members tasked with pumping more are the exact nations facing regional contagion risks from falling debris and retaliatory strikes.

• Sunday Trading: US crude oil initially soared more than 10% and Brent surged as much as 13% when trading opened on Sunday. Eurasia Group previously estimated the initial jump could be $5-$10 per barrel, while Barclays raised its forecast to $100/bbl if the disruption persists. (Source: Fox Business)

• All week: Supply disruption metrics from Tanker tracking data by Kpler and Vortexa.

• All week: Will there be any movement from the US on releasing some of the SPR volumes (currently around 415 million barrels)?

Cross-Asset View

• Oil: The market was pricing in a potential supply surplus going into the weekend. Kpler estimated that the market would likely be running up over 3 mm bpd of excess supply. The duration of this situation is a key factor on when the geopolitical premium may override fundamentals.

• Natural Gas: The massive volume of Qatar’s LNG exports has no bypass. A reduction in LNG supplies could send Asian and European spot prices soaring, with Goldman Sachs warning that European natural gas prices could swell by up to 130% if the Strait disruption lasts for a month.

• Gold: Closed at $5,278.20/oz on 27 February; surged near $5,400/oz in today's early session, historically, it moves during geopolitical escalation through safe-haven demand.

• Equities: The S&P 500 closed at 6,878.88 on 27 February. Early Monday trading across Asian markets reflects severe risk-off sentiment, with energy shares poised to shift dramatically as Western markets open.

• Currencies: Safe-haven currencies and currencies of oil-importing emerging markets could experience volatility.

Conclusion

The level of this escalation seems to significantly differ from previous episodes, although the limited facility strikes in June 2025, when oil prices rose quickly but then fell once the strait reopened, could serve as a reference point. The longer-term impact may depend more on how long the disruption lasts than on how markets respond initially. Traders may want to keep risk management in mind heading into the week.

*Past performance does not reflect future results. The above is for marketing and general informational purposes only, and are only projections and should not be taken as investment research, investment advice or a personal recommendation.