Why oil and gas markets are dreading the risk of supply disruption in the Strait of Hormuz
Basij paramilitary force speed boats are sailing along the Persian Gulf near the Bushehr nuclear power plant during the IRGC marine parade commemorating the Persian Gulf National Day in the south of Iran, on April 29, 2024.
Nurphoto | Nurphoto | Getty Images
An escalating conflict in the Middle East has thrust the world’s most important oil artery back into the global spotlight.
The Strait of Hormuz is widely recognized as a vital oil transit chokepoint. Situated between Iran and Oman, the waterway is a narrow but strategically important channel that links crude producers in the Middle East with key markets across the world.
In 2022, oil flow in the Strait of Hormuz averaged 21 million barrels per day, according to the U.S. Energy Information Administration (EIA). That’s the equivalent of about 21% of the global crude trade.
The inability of oil to traverse through a major chokepoint, even temporarily, can ratchet up global energy prices, raise shipping costs and create significant supply delays.
For many energy analysts, an event where there is a blockade or a significant disruption to flows via the Strait of Hormuz, is seen as a worst-case scenario — one that could prompt oil prices to climb far above $100 a barrel.
“The worst case could well be if Israel strikes Iran [and] Iran takes actions to slow down or potentially try to block the Strait of Hormuz,” Alan Gelder, energy analyst at Wood Mackenzie, told CNBC’s “Squawk Box Europe” on Monday.
“[This] would have a far more dramatic effect because that is where 20% of global crude exports travel through from the likes of Saudi Arabia, Kuwait and Iraq — and the UAE to some extent — that are the holders of the global spare capacity,” Gelder said.
“So, we contend the market is not pricing in the worst case, it is pricing in the potential impact on Iranian energy infrastructure,” he added.
Israel’s promise to hit back at Iran following a ballistic missile attack last week has stoked speculation that the country could soon launch an attack on Tehran’s energy infrastructure.
Iran, which has pledged a forceful response of its own in the event of any further Israeli actions, is a major player in the global oil market.
How high could oil prices go?
Energy analysts have questioned whether oil markets are being too complacent about the risks of a widening conflict in the Middle East.
Saul Kavonic, senior research analyst at MST Financial, said supply disruptions along the Strait of Hormuz could send oil prices significantly higher.
“If we see an attack on Iranian production, up to about 3% of global supply could be curtailed and even if we just see tighter sanctions, that could also start to curtail supply by up to 3%. That on its own could see oil approach 100 or even exceed 100 dollars per barrel,” Kavonic told CNBC’s “Squawk Box Asia” on Oct. 3.
“If [transit through the Strait of Hormuz] was to be impacted, we’re talking about an oil price impact that would be three times larger than the oil price shocks of the 1970s in the wake of the Iranian revolution and the Arab oil embargo, and now we’re talking about $150 plus a barrel of oil,” he added.
Oil prices traded more than 3% on Monday, extending gains even after notching their sharpest weekly gain since early 2023 last week.
International benchmark Brent crude futures with December expiry were last seen trading 1.5% lower at $79.74 a barrel, while U.S. West Texas Intermediate futures stood at $75.99, down 1.5%.
Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, said the general rule of thumb in commodity markets is that if supply is severely restricted, then the price will often spike to between five and 10 times its normal level.
“So, if worst came to worst and the Strait of Hormuz was closed for a month or more, then Brent crude would likely spike to USD 350/b, the world economy would crater and the oil price would fall back to below USD 200/b again over some time,” Schieldrop said Friday in a research note.
“But seeing where the oil price sits right now the market doesn’t seem to hold much probability for such a development at all,” he added.
What about gas markets?
Warren Patterson, head of commodities strategy at Dutch bank ING, said any disruptions to transit along the Strait of Hormuz would have seismic consequences for global energy markets.
“The key concern, while still extreme, would be that these disruptions spill over to the Strait of Hormuz, affecting Persian Gulf oil flows,” Patterson said in a research note published on Oct. 4.
“A significant disruption to these flows would be enough to push oil prices to new record highs, surpassing the record high of close to $150/bbl in 2008,” he added.
View looking north showing the Strait of Hormuz, connecting the Gulf of Oman with the Persian Gulf, with the Zagros Mountains and Qeshm Island of Iran in the background, and areas of Oman, Muscat and the United Arab Emirates in the foreground, as seen from the Space Shuttle Columbia during shuttle mission STS-52, 22nd October to 1st November 1992.
Space Frontiers | Archive Photos | Getty Images
ING’s Patterson said any supply disruption in relation to the Strait of Hormuz would not be isolated to the oil market.
“It could also potentially lead to disruptions in [liquified natural gas] flows from Qatar, which makes up more than 20% of global LNG trade,” he continued.
“This would be a shock to global gas markets, particularly as we move into the northern hemisphere winter, where we see stronger gas demand for heating purposes. While we are seeing a ramp-up in new LNG export capacity, this still falls well short of Qatari export volumes.”
Wind energy powered 20% of all electricity consumed in Europe (19% in the EU) in 2024, and the EU has set a goal to grow this share to 34% by 2030 and more than 50% by 2050.
To stay on track, the EU needs to install 30 GW of new wind farms annually, but it only managed 13 GW in 2024 – 11.4 GW onshore and 1.4 GW offshore. This is what’s holding the EU back from achieving its wind growth goals.
Three big problems holding Europe’s wind power back
Europe’s wind power growth is stalling for three key reasons:
Permitting delays. Many governments haven’t implemented the EU’s new permitting rules, making it harder for projects to move forward.
Grid connection bottlenecks. Over 500 GW(!) of potential wind capacity is stuck in grid connection queues.
Slow electrification. Europe’s economy isn’t electrifying fast enough to drive demand for more renewable energy.
Brussels-based trade association WindEurope CEO Giles Dickson summed it up: “The EU must urgently tackle all three problems. More wind means cheaper power, which means increased competitiveness.”
Permitting: Germany sets the standard
Permitting remains a massive roadblock, despite new EU rules aimed at streamlining the process. In fact, the situation worsened in 2024 in many countries. The bright spot? Germany. By embracing the EU’s permitting rules — with measures like binding deadlines and treating wind energy as a public interest priority — Germany approved a record 15 GW of new onshore wind in 2024. That’s seven times more than five years ago.
If other governments follow Germany’s lead, Europe could unlock the full potential of wind energy and bolster energy security.
Grid connections: a growing crisis
Access to the electricity grid is now the biggest obstacle to deploying wind energy. And it’s not just about long queues — Europe’s grid infrastructure isn’t expanding fast enough to keep up with demand. A glaring example is Germany’s 900-megawatt (MW) Borkum Riffgrund 3 offshore wind farm. The turbines are ready to go, but the grid connection won’t be in place until 2026.
This issue isn’t isolated. Governments need to accelerate grid expansion if they’re serious about meeting renewable energy targets.
Electrification: falling behind
Wind energy’s growth is also tied to how quickly Europe electrifies its economy. Right now, electricity accounts for just 23% of the EU’s total energy consumption. That needs to jump to 61% by 2050 to align with climate goals. However, electrification efforts in key sectors like transportation, heating, and industry are moving too slowly.
European Commission president Ursula von der Leyen has tasked Energy Commissioner Dan Jørgensen with crafting an Electrification Action Plan. That can’t come soon enough.
More wind farms awarded, but challenges persist
On a positive note, governments across Europe awarded a record 37 GW of new wind capacity (29 GW in the EU) in 2024. But without faster permitting, better grid connections, and increased electrification, these awards won’t translate into the clean energy-producing wind farms Europe desperately needs.
Investments and corporate interest
Investments in wind energy totaled €31 billion in 2024, financing 19 GW of new capacity. While onshore wind investments remained strong at €24 billion, offshore wind funding saw a dip. Final investment decisions for offshore projects remain challenging due to slow permitting and grid delays.
Corporate consumers continue to show strong interest in wind energy. Half of all electricity contracted under Power Purchase Agreements (PPAs) in 2024 was wind. Dedicated wind PPAs were 4 GW out of a total of 12 GW of renewable PPAs.
Read more: Renewables could meet almost half of global electricity demand by 2030 – IEA
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In the Electrek Podcast, we discuss the most popular news in the world of sustainable transport and energy. In this week’s episode, we discuss the official unveiling of the new Tesla Model Y, Mazda 6e, Aptera solar car production-intent, and more.
The show is live every Friday at 4 p.m. ET on Electrek’s YouTube channel.
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The Chinese EV leader is launching a new flagship electric sedan. BYD’s new Han L EV leaked in China on Friday, revealing a potential Tesla Model S Plaid challenger.
What we know about the BYD Han L EV so far
We knew it was coming soon after BYD teased the Han L on social media a few days ago. Now, we are learning more about what to expect.
BYD’s new electric sedan appeared in China’s latest Ministry of Industry and Information Tech (MIIT) filing, a catalog of new vehicles that will soon be sold.
The filing revealed four versions, including two EV and two PHEV models. The Han L EV will be available in single- and dual-motor configurations. With a peak power of 580 kW (777 hp), the single-motor model packs more power than expected.
BYD’s dual-motor Han L gains an additional 230 kW (308 hp) front-mounted motor. As CnEVPost pointed out, the vehicle’s back has a “2.7S” badge, which suggests a 0 to 100 km/h (0 to 62 mph) sprint time of just 2.7 seconds.
To put that into perspective, the Tesla Model S Plaid can accelerate from 0 to 100 km in 2.1 seconds. In China, the Model S Plaid starts at RBM 814,900, or over $110,000. Speaking of Tesla, the EV leader just unveiled its highly anticipated Model Y “Juniper” refresh in China on Thursday. It starts at RMB 263,500 ($36,000).
BYD already sells the Han EV in China, starting at around RMB 200,000. However, the single front motor, with a peak power of 180 kW, is much less potent than the “L” model. The Han EV can accelerate from 0 to 100 km/h in 7.9 seconds.
At 5,050 mm long, 1,960 mm wide, and 1,505 mm tall with a wheelbase of 2,970 mm, BYD’s new Han L is roughly the size of the Model Y (4,970 mm long, 1,964 mm wide, 1,445 mm tall, wheelbase of 2,960 mm).
Other than that it will use a lithium iron phosphate (LFP) pack from BYD’s FinDreams unit, no other battery specs were revealed. Check back soon for the full rundown.
Source: CnEVPost, China MIIT
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