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US and Israeli airstrikes on Iran, which began on 28 February and killed Supreme Leader Ayatollah Ali Khamenei, along with Iran’s subsequent strikes on GCC states and critical energy infrastructure, have driven a spike in oil prices.

The price of Brent reached its highest level in a year, rising by more than 8% in early trade on 2 March, briefly exceeding $82 a barrel before easing back above $78. US oil benchmark WTI traded around $72.

Shipping through the Strait of Hormuz, through which a fifth of the world’s crude supplies are said to pass every day, has effectively halted, bringing Gulf oil exports close to a standstill.

Liquefied natural gas (LNG) tanker crossings have stopped since 28 February, disrupting around 120 billion cubic metres a year of supply from Qatar and the UAE, a volume comparable to the gas Europe has lost from Russia since 2021.

Petrochemical markets have also reacted, with China’s methanol futures rising more than 6% amid concerns over Iranian supply. Iran is the world’s second-largest methanol producer.

Strait of Hormuz oil disruption

Trade transiting the Gulf through the Strait of Hormuz is of critical importance to the global economy, especially regarding the export of oil and gas from Middle Eastern producers to markets in Asia and Europe.

Trade has largely ground to a halt for precautionary reasons. Although there is no formal blockade, tankers remain anchored due to heightened security and insurance risks, intensifying supply concerns.

Oman reported an explosion on an oil tanker near the Strait of Hormuz in the afternoon of 2 March that killed one crew member of Indian nationality. The tanker was flying the flag of the Republic of the Marshall Islands, and was attacked by a drone boat 52 nautical miles (96.3 kilometres) off the coast of Muscat, according to Oman’s Maritime Security Centre (MSC).

The vessel, named MKD VYOM, was carrying approximately 59,463 metric tonnes of cargo and the attack, the source of which remains unknown, triggered an explosion in the main engine room, resulting in a fire.  There were 21 people of multiple nationalities on board, including 16 Indian, four Bangladeshi and one Ukrainian national. Oman’s MSC evacuated the crew using the commercial vessel MV SAND, which flies the flag of the Republic of Panama.

Earlier on 2 March, Saudi Aramco shut down its Ras Tanura refinery and export facility, located in Saudi Arabia’s Eastern Province and along the Gulf coast, after it caught fire in a drone attack launched by Iran.

The risk of disruption largely depends on how the conflict develops, how long the Iranian regime can endure, and its military strength and command lines. Iran’s naval fleet appears to have been wiped out, complicating any closure of the shipping route around Hormuz.

“Markets are pricing in the threat: Brent and WTI spiked ~10–13%, with prices now driven more by shipping security and vessel availability than upstream supply. The market is treating this as a logistics shock, not a production shock. Even with spare capacity in the GCC, barrels are only ‘real’ when they can be lifted and delivered,” says Jaison Davis, economic research analyst at GlobalData.

“Tanker rerouting, port disruptions, and vessel queues can tighten prompt supply quickly, amplifying volatility and pushing crude higher even without sustained outages,” he says.

“GCC exposure varies. Saudi Arabia and the UAE can divert some exports via pipelines and terminals outside Hormuz (e.g., to Fujairah), but capacity is limited and prone to bottlenecks, so it can’t fully replace seaborne flows. Bahrain, Kuwait and Qatar rely heavily on Hormuz and are most exposed,” Davis adds.

He further says: “Smaller Gulf states are staring at a volume problem, not just a price problem. Higher oil prices can support revenues, but if exports are delayed or curtailed, fiscal balances deteriorate quickly. A month-long severe disruption could widen deficits by 1-3 percentage points of GDP in several exporters, with Bahrain, Kuwait and Qatar most vulnerable.”

 In Asia, particularly in China, oil storage is well filled to offset such an outage. Europe also benefits from ample storage, as well as from the fact that Saudi Arabia ships substantial volumes of oil directly from the Red Sea and through the Suez Canal into the Mediterranean.

The most feared scenario of an economically damaging oil and gas supply disruption requires serious damage to infrastructure, rather than the closure of the Strait of Hormuz, which was likely to have happened in the first days of the conflict. Trade through the Strait likely remains crippled for days if not weeks, but the oil market seems prepared for this most likely scenario.

Potential LNG shortage

The LNG supply scenario has also become risky after state-owned QatarEnergy announced the halting of operations at its main production complex at Ras Laffan Industrial City, following a 2 March attack by Iranian drones.

Reduced Qatari LNG exports are expected to push up gas prices globally. Additionally, no LNG vessels have transited the Strait of Hormuz since 28 February, effectively cutting off around 20% of global LNG supply.

Europe imports a relatively small share of its LNG directly from Qatar, but Asia’s dependence is much greater. This is likely to increase competition for flexible LNG cargoes and drive global prices higher.

European storage levels, at 30% at the start of February, add to vulnerability ahead of the summer refill season. If disruption persists into the second quarter, further upside in gas and potentially oil prices remains possible, particularly if shipping disruptions and insurance constraints continue to limit flows.

“Qatar’s LNG is a key flashpoint: all cargoes pass through Hormuz, and major Asian buyers (Japan, South Korea, India) rely on a steady supply. A prolonged delay or closure would likely spike Asian spot LNG prices amid tight supply and high freight, feeding global energy inflation and making $100+ oil plausible,” Davis says.

Wider implications

Should the war drag on and critical energy infrastructure continue to be attacked, oil and gas markets could suffer undesirable consequences, least of all unsustainable price fluctuations.

“Near-term risks are shifting downstream: storage limits at Bahrain’s Sitra refinery, possible disruption at Kuwait’s Shuaiba petrochemical hub, and safety-driven evacuations near Oman’s Khasab port show how quickly refining, petrochemical supply chains, and ports can be hit. Output hikes, like Saudi +206 kbpd (thousand barrels a day), matter little if shipping is constrained, Davis says.

He concludes: “Downstream assets are the first to feel real-world disruption: storage fills, feedstock deliveries slip, and safety protocols restrict throughput. When refineries and petrochemical sites slow, the economic hit extends beyond crude, into fuels, plastics, and industrial inputs, creating broader inflationary pressure and supply-chain uncertainty across regional trade routes.”