Oil at $200? Markets weigh worst-case scenarios amid Strait of Hormuz crisis

Oil markets are bracing for the possibility of a historic price surge, with prices potentially rising to between $150 and $200 per barrel if the Strait of Hormuz remains partially closed through mid-May, according to warnings from JPMorgan and other institutions.

During Thursday’s trading, US West Texas Intermediate crude jumped above Brent to settle at $112 per barrel, while Brent crude ended the week near $109 per barrel.

Sharp decline in shipping activity

Shipping traffic through the Strait of Hormuz has dropped sharply since early March, with Iran currently allowing only a limited number of vessels to pass.

Even if full transit resumes immediately, it could take three to six months for production and refining supply chains to return to normal.

In an effort to reopen the strait, the United Kingdom hosted a virtual meeting this week involving more than 30 countries aimed at ensuring safe passage and preventing Iran from imposing transit fees.

So far, however, there are no clear signs of a reopening.

The $200 scenario

Energy consultancy FGE NexantECA warned that prices could surge to $200 per barrel if the strait remains largely closed for another six weeks. Another forecast suggested prices could reach a record $200 if the Gulf conflict continues through June.

Analysts had already warned shortly after the US, Israeli, and Iranian attacks began on February 28 that the war could push oil above $100 per barrel.

On March 9, Brent — the global oil benchmark — approached $120 per barrel and has not fallen below $100 since March 13.

An Israeli strike on Iran’s South Pars gas field on March 18, followed by Iranian attacks on oil and gas facilities in Qatar, Saudi Arabia, and the UAE, pushed prices higher again, above $108 per barrel.

A fifth of global oil passes through the strait

Most analysts agree that prices could climb further if the Strait of Hormuz — which carries about one-fifth of global oil supply in peacetime — remains effectively closed in the coming weeks.

The main disagreement lies in the scale of the potential increase.

Vandana Hari, founder of Vanda Insights, said some Middle Eastern crude grades such as Oman and Dubai have already surpassed $150, putting $200 within reach, even if Brent or WTI have not yet reached that level.

She added that the extent of the price surge will depend almost entirely on how long the strait remains closed.

Near-total halt in shipping

After Iran announced the closure of the strait at the start of the conflict and threatened to target any vessels attempting to pass, shipping traffic has nearly come to a halt.

US President Donald Trump has so far failed to rally international support for a naval convoy to reopen the strait, while several countries are seeking bilateral arrangements with Iran to secure safe passage for their vessels.

In recent days, only a limited number of ships have been allowed through, most flying the flags of India, Pakistan, Turkey, and China.

Global supply shortfall

Despite commitments to release 400 million barrels from emergency oil reserves in coordination with the International Energy Agency, these volumes are insufficient to fully offset the disruption in shipments through the strait.

A research unit at Singapore’s OCBC Group estimates the global market is facing a daily shortfall of around 10 million barrels, even with the use of reserves.

Less than three weeks into the conflict, market participants are increasingly taking seriously the possibility of prices exceeding $150 and potentially reaching $200 per barrel.

Fereidun Fesharaki, chairman emeritus of FGE NexantECA, said prices could rise to $200 or higher if the strait remains largely closed.

He added that while markets are partly driven by sentiment and Trump’s social media comments, the reality is that around 100 million barrels of oil are not passing through the strait each week — equivalent to 400 million barrels per month.

He warned that these losses would become increasingly significant over time.

A “world without Hormuz” scenario

The firm also expects the International Energy Agency may need to release additional strategic reserves by mid-April and possibly again in June.

It added that a “world without the Strait of Hormuz” is becoming a realistic scenario that could last for months, potentially forcing structural changes in energy markets, supply chains, and global trade.

Fesharaki warned that such a scenario could trigger a global economic shock, with a severe recession lasting for years.

Warnings from other institutions

FGE NexantECA is not alone in warning about $200 oil.

Analysts at Macquarie Group said prices could reach a record $200 per barrel if the Middle East conflict persists throughout the second quarter.

Wood Mackenzie analysts also suggested Brent could soon hit $150, with $200 “not out of the question” by 2026.

Iran itself has hinted at such levels, with a military spokesperson warning last week that the world should “prepare” for prices reaching $200.

Severe global economic consequences

Experts warn that oil prices at $150 or higher would place a heavy burden on the global economy.

The International Monetary Fund estimates that a sustained 10% increase in oil prices raises global inflation by about 0.4% and reduces economic growth by around 0.15%.

Brent’s historical peak was $147.50 per barrel during the 2008 financial crisis — equivalent to roughly $224 in today’s dollars.

Energy expert Adi Imsirovic of the University of Oxford said $200 oil would act as a “strong brake” on the global economy, noting that such a scenario is entirely plausible.

He added that it would impact inflation, growth, and employment, and could also lead to shortages in fuel and materials such as fertilizers and plastics.

More moderate views

Some analysts, however, see the $200 scenario as overstated.

Sasha Voss, an energy markets analyst at Marex in London, noted that increased production from countries such as the United States, Canada, Argentina, Brazil, and Guyana — along with alternative supply routes like Saudi Arabia’s East-West pipeline — could help ease pressure.

She added that the experience following the Russia-Ukraine war showed that higher prices tend to trigger increased production elsewhere.

The role of demand destruction

While price direction will largely depend on shipping flows through the Strait of Hormuz, broader supply-demand dynamics will also play a role.

At sufficiently high price levels, consumers begin to reduce consumption — a phenomenon known as demand destruction.

Although oil demand is less elastic than most commodities due to limited substitutes, prices may begin to retreat after surpassing certain thresholds.

Bob McNally, president of Rapidan Energy Group, said no one knows the exact level at which this effect kicks in, but it could be above the previous peak of $147 per barrel.

Economist Gregor Semieniuk of the University of Massachusetts Amherst added that price outcomes will depend on how quickly two opposing forces interact: buyers willing to pay any price for reduced volumes versus those exiting the market as prices rise and demand weakens.