Originally published in Wiley’s Oil and Energy Trends, March 2026.
US-Israeli attacks on Iran have taken out the main leadership and led Iran to assert control over the Strait of Hormuz, through which up to 20% of global oil and gas supply passes. Iran has also hit surrounding countries, with attacks focused on US assets, as well as oil and gas facilities and vessels. The situation has slashed the flow of oil and gas from the Gulf and led to cuts in production, sending prices soaring. It has also left Gulf producers and consumers around the world seeking alternatives to shipping oil and gas through the Strait of Hormuz, and protection for vessels that do transit.
A shortage of supply is developing in the global oil market due to sharply reduced flows from the Mideast Gulf resulting from the Israeli/US-Iran war. The longer the situation lasts the higher oil prices are likely to rise. It was fortunate for buyers that hostilities began against a background of weak fundamentals, with surplus supply of about 2mn b/d pencilled in for this year by the International Energy Agency (demand 104mn b/d vs supply of 106mn b/d).
This, along with a pre-existing crude war risk premium of about $10/bl and healthy global inventories of 8210mn barrels in January (highest since February 2021), has helped mitigate the initial impact, with prices steadying about 30% up at around $100/bl for May Brent in mid/late-March (see chart), before they moved above $110/bl towards the end of the month.
Levels spiked on March 13 after an Israeli attack on Iran’s South Pars gas field, which led to counterattacks by Iran on Qatari gas facilities. Levels jumped again March 20 after Trump threatened to attack Iranian power stations – although they eased back again after the threat was withdrawn. Iran had responded with counter threats to hit power and desalination plants in neighbouring countries. Prices rose again at the end of the month, following hard line demands from both sides and an on-going build-up of US forces.
ICE May Brent (30 March)
Source: Intercontinental Exchange. https://www.ice.com/products/219/Brent-Crude-Futures/data
Before the conflict, 150-175 vessels and about 20mn barrels of crude and oil products transited the Strait of Hormuz each day, but by mid-month Iran had hit around 15 vessels in the Gulf, halting most movement. In the second week of March, just eight to 10 vessels per day transited the straits, according to Wood Mackenzie.1 Most of these were thought to be Iranian or Chinese, although transit was widened to include other countries as the month progressed.
According to the IEA’s Oil Market Report of 12 March, Gulf crude production was down by at least 8mn b/d, with a further 2mn b/d of condensate and NGLs shut in, totalling approximately 10mn b/d of liquids offline.2 Global oil supply in March is projected to fall by the same amount to 98.8 mb/d, its lowest level since Q1 2022. Some 238 laden tankers were sitting idle in the Gulf as of 11 March, holding 186 million barrels of stranded crude.
Iranian attacks also caused damage to energy infrastructure, including the 550,000 b/d Ras Tanura refinery, Saudi Aramco’s largest domestic facility. This has disrupted refined product flows and storage operations, with major implications for global jet fuel and diesel supplies in particular, given limited flexibility elsewhere to increase output.
Gulf producers exported roughly 3.3mn b/d of refined products and 1.5mn b/d of LPG through the Strait in 2025, according to the IEA. More than 3mn b/d of Gulf refining capacity has already shut due to attacks and a lack of viable export outlets. Qatar’s Pearl GTL which converts 1.6bn ft3/d of gas into 140,000 b/d of liquids, has also been hit, as well as the nearby giant Ras Laffan LNG plant – which could affect condensate output. Production and supply of associated products such as petrochemicals, fertilizer, helium and sulphur, are also heavily affected.
Producers constrained
Some exporters are more affected than others. Without alternative routes to market, the closure locks in all of Kuwait’s 3-plus million b/d crude and products output, and most of Iraq’s 5mn b/d (southern shipments of 3.35mn b/d), although limited volumes can be shipped by road tanker through Jordan or rerouted through the Ceyhan pipelines to the Mediterranean.
Crude began flowing from Kirkuk to the Turkish port of Ceyhan at an initial rate of 250,000 b/d on March 20, reactivating the strategic export route after a lengthy period of suspension. This is expected to be raised to 650,000 b/d, and there is even talk of reinstating another older 1.5mn b/d pipeline that takes the same route but hasn’t been used in decades. Talks between Iraq and Iran were also reported to allow some Iraqi tankers to exit the Gulf.
The threat also affects the UAE’s 4mn b/d and Saudi 10mn b/d production – although both countries have alternative routes for some of this. Saudi Arabia claimed mid-month that 70% of its exports would flow via its east-west pipeline to Yanbu on the Red Sea within weeks, and it was reportedly flowing at that rate (7mn b/d) by March 29. Of this, 2mn b/d is processed by local refineries and the rest earmarked for export as crude via Yanbu on the Red Sea. East-west flow rates were just 750,000 b/d before the crisis.3
Both crude and products can then be exported via the Red Sea – although this route also has its risks, with Iran-backed Houthi rebels in Yemen threatening to resume attacks on vessels in the area. The threat intensified after Houthi missile attacks on Israel March 28 and subsequent threats to block the Bab al-Mandab Straits. There is another route for the Saudi oil via the SUDMED pipeline across Egypt to the Mediterranean, but this would incur significant extra time and cost.
The UAE can push more crude and refined products through pipeline connections with Oman and via its ADCOP pipeline to the port of Fujairah on the Arabian Sea coast outside the straits, although Fujairah has also been subject to attacks from Iran. Around 2mn b/d can exit in this way. Smaller volumes of oil from Qatar and Bahrain are also confined to the Gulf.
Iran has not stopped exporting oil, with volumes rising from 2.0mn b/d before the conflict to 2.1mn b/d mid-March – most of which headed to China – although it is unclear how much loaded from mid-March on. The US waived sanctions on Iranian (and Russian) oil at sea until April 19, effectively allowing it to be purchased and unloaded without penalty.4
The US and Israel have so far refrained from hitting Iran’s oil infrastructure, including on Kharg Island, the terminal through which over 90% of Iranian crude exports flow, although the US destroyed military targets on the island on March 13 and was threatening to capture the island at the time of writing.
Without sufficient routes to market, storage in the Gulf region is at tank top and producers have started to reduce production – taking oil permanently out of the system.
Straits of Hormuz flow
As the month progressed a key metric became the number of vessels able to pass through the Straits of Hormuz, as well as the number of vessels getting hit. By mid-month around 15 vessels had been hit by the Iranians. About one per day were able to exit during the second week of March, and this rose following negotiations between some buyers and Iran.
Around the middle of the month, India negotiated passage for two LPG tankers, and Pakistan received one crude tanker. The LPG was expected to go to fertilizer production. Between March 15 and 17, only 15 transits were recorded, with roughly 90% linked to Iran through ownership or trade. The flows remained a fraction of normal levels.
Later in the month, Iran said it was considering a Hormuz transit and fee regime denominated in Iranian rials, and only for “non-hostile” countries, which would exclude most US allies.5 This fee would guarantee safe passage for pre-approved vessels through its territorial waters, according to Intellinews reports citing Lloyd’s List on March 20. At least one tanker was believed to have paid a fee of around $2mn to transit the Straits.
Vessels are obliged to follow a corridor close to the Iranian coast near Larak Island, where they undergo visual inspection by IRGC naval forces. There were reports of direct negotiations with countries, including China, Pakistan, India, Iraq, Malaysia and Thailand, with a number of their vessels passing through the Straits – although still only a fraction of normal volumes. Sovereignty over and control of the Straits was among five key demands made by the Iranians.
Some reports suggest Iran has also been laying mines, which is a further deterrent to shippers. The route of cargoes that have passed through Hormuz has avoided the traditional main corridors, which would tend to support this possibility. At first, US forces suggested that they will be able to both clear mines and provide escorts into the Gulf, but this was later withdrawn.
Freight rates have risen sharply, and even if insurance is available, most shippers are unwilling to risk lives attempting to traverse the Straits. Most insurance taken out before the conflict is now void, although insurers are reportedly still willing to commit coverage at higher rates – but this has been thrown into doubt by overly optimistic security claims by Trump and the US administration, which the insurers use to work out their fees. Similarly, without concrete reliable security guarantees, crew are not prepared to take the risk. The US had promised to guarantee lower cost insurance through the major US provider Chubb, and towards the end of the month there were reports that the US administration had agreed to underwrite insurance.
Brent-WTI spread widens
The spread between Brent and WTI has widened (to $13.53/bl March 26 from normal levels of around $4/bl), with US grades now starting to look very cheap globally versus competing grades (although high freight rates offsets this, and buyers are mostly looking for heavier grades).
The lower US benchmark means the impact on US consumers is slightly less severe than in most countries outside the Americas, where oil prices are generally Brent linked. However, US gasoline prices – a key determinant of inflation and voter sentiment – are still rising fast. Fuel costs in California are most affected due to recent refinery closures and a relatively heavy dependence on imports from Asia. The US Jones Act (which restricts internal sea routes to US flagged vessels) has been waved in order to smooth the flow of liquids around the country.
Some traders and politicians are concerned over the risk that the US could restrict exports if domestic gasoline prices rise further. Any restriction of US exports would further widen the gap between WTI and international grades, making the impact less significant in the US domestic market than elsewhere and effectively splitting the world’s oil market into two.
The physical market, especially in Asia, is also trading at a significant premium to Brent futures, reflecting tightness on the ground and resulting in run cuts across the continent, despite widening crack spreads as refined product prices soar.
China well prepared
Through 2025, China was thought to be stockpiling up to 2mn b/d of crude, which helped support the price through the year. This has left the world’s biggest oil importer well prepared for the current supply disruption. Add to that the fact that several of the vessels currently exiting the Gulf are heading for China, along with a decision to restrict product exports, and the country should be able to avoid shortages (although there were reports of panic buying late in the month).
Shortages have certainly taken hold in other countries in the region, many of which are dependent on Chinese product exports. Australia, for example, relied on China for 32% of its aviation fuel supply in 2025. Thailand and other regional refiners have also blocked fuel exports, conserving supplies domestically. Among the early disruptions, a four-day week has been imposed in Sri Lanka, gasoline and diesel rationing in the Philippines, and significant shortages and rationing in Thailand, Pakistan and Bangladesh. Rationing or shortages are also possible in places like the UK, EU, Japan and South Korea if the straits blockade continues for a lengthy period.
India is also heavily exposed. Around 52% of India’s roughly 5mn b/d of crude imports pass through the Straits of Hormuz, with Iraq, Saudi Arabia, the UAE, Kuwait and Qatar as its key Middle Eastern suppliers, according to Platts.7 Currently, no Iranian oil flows to India. To relieve the shortfall, India is expected to switch back to importing more Russian barrels.
Russian sanctions relaxed
On March 5, India was given a 30-day waver by the US on ceasing purchases of Russian crude to ease market tightness.8 This was expanded to all buyers of Russian barrels that had already loaded as of mid-March – a move that was met with heavy criticism from European allies. Russia is thought to be gaining a huge windfall from the higher prices, enough to make a significant difference in its war effort with Ukraine.
Chinese state oil majors are understood to be considering purchases of Russian crude after a four-month lull, according to Reuters.9 Prices for Russia’s Urals grade were reported at close to parity with Brent, after having traded at significant discounts under the sanctions regime. Purchases had been dominated by India and Chinese independent refiners in the run up to the war. Turkish refiners were also seeking Russian barrels, according to reports in Platts.
However, attacks by Ukraine on Russian Baltic ports towards the end of the month put up to 2mn b/d of Russia’s crude export capacity out of action temporarily. This may curb some of the increased revenue Russia is gaining from the high prices and sanctions relief, but it has also led to calls for restraint from Ukraine’s allies who are concerned over soaring oil prices.
IEA strategic stock withdrawals
In order to supplement the squeeze in supply, the IEA confirmed on March 10 the largest ever withdrawal from strategic petroleum reserves of 400mn barrels by its 32 member countries. The volume represents about 4 days of global consumption or about 20 days of supply through the Straits of Hormuz.
The release was double the size of the one in 2022 following Russia’s invasion of Ukraine. It represents about 22% of all the stocks held by IEA member governments under regulatory obligations. However, prices stayed firm, with the announcement widely expected. Traders also cited little detail on the timing if the release.10 Altogether, the stock release will add about 3.3mn b/d to global supply – well below the 8mn b/d or so that has been taken out of the market by Iranian control of Hormuz.
There are no strategic stocks of oil products, and they are rising more sharply in price than crude, widening refinery margins. Platts estimates the product deficit across middle distillates, LPG, and naphtha at 3–5mn b/d, with no near-term solution other than demand destruction.
Aside from oil, the situation is hitting Gulf states’ economies hard, especially in the areas of tourism and travel. This has led to reports of the reassessment of billions of dollars’ of investment commitments to the US.11
References
1.https://www.woodmac.com/blogs/energy-pulse/oil-prices-rise-despite-iea-reserves-release/
2. https://www.iea.org/reports/oil-market-report-march-2026
3. https://webcast.openbriefing.com/12496/player/
5. https://www.intellinews.com/iran-says-tehran-will-impose-new-hormuz-regime-to-sanction-the-west-after-war-432582/
6. https://www.intellinews.com/iran-begins-charging-vessels-to-transit-strait-of-hormuz-through-irgc-controlled-safe-corridor-432828/
7. https://www.spglobal.com/energy/en/news-research/latest-news/crude-oil/030326-india-assures-uninterrupted-oil-product-supply-crude-diversification-offers-cushion
8. https://www.independent.co.uk/asia/india/us-india-russian-oil-waiver-iran-war-b2933097.html
9. https://www.reuters.com/business/energy/china-oil-majors-resume-seeking-russian-oil-after-4-month-halt-sources-say-2026-03-17/