• The US-Iran conflict, now in its second day as of March 1, 2026, has caused a de facto closure of the Strait of Hormuz for most commercial shipping, stalling oil tankers and millions of barrels in the Gulf.
  • Oil futures rallied on March 1 amid halted main lane transits, with short disruptions (1-2 weeks) manageable but beyond 3-4 weeks, prices could surge sharply due to delivery constraints, not storage limits.
  • Energy flows via the Strait of Hormuz likely stall during the conflict, with duration—not damage so far—emerging as the key market driver, as insurance withdrawals and US Navy warnings enforce the shutdown.

A De Facto Shutdown Unfolds

US and Israeli strikes on February 27-28 targeted Iran, killing its Supreme Leader and prompting Iranian missile and drone attacks on UAE infrastructure, Saudi Arabia, and Bahrain, according to people familiar with the matter. This escalation has led to a near-halt in tanker traffic through the Strait of Hormuz, a critical chokepoint handling approximately 20% of global oil flows, or 20 million barrels per day in 2024. Sky News tracking shows vessels like the KHK Empress turning back, AIS signals jammed, and ships clustering at ports, with insurers pulling out and hiking premiums to six-year highs, effectively creating a de facto closure for non-Iranian and non-Chinese flagged ships.

"What we're seeing is a physical shock, not just a premium spike," said one shipping executive, who requested anonymity due to the sensitivity of ongoing operations. Efforts to reach officials in the Gulf for comment were unsuccessful, but market sources indicate that the US Navy has issued warnings, further complicating passage. Japan's NYK (9101.T) and MOL (9104.T) have already suspended Hormuz passages, adding to the disruption.

Market Implications and Constraints

The stalled deliveries are putting immediate pressure on gasoil, with jet fuel likely to follow, particularly affecting Asian markets such as China and India. Analysts note that while OPEC+ holds about 3.5 million barrels per day in spare capacity, primarily in Saudi Arabia and the UAE, pipelines like Saudi's East-West route cannot fully offset the loss. An OPEC+ meeting is scheduled for April 5, but emergency actions could be considered if the disruption persists. LNG spreads, such as JKM-TTF, may widen as US exports max out, according to energy traders.

Unlike past symbolic retaliations, such as the June 2025 conflict that caused brief jet fuel spikes, this episode involves more severe regional targeting and insurance withdrawals. Historical context shows Iran has repeatedly threatened Hormuz closures without follow-through, but current events suggest a shift toward coercive diplomacy. Duration over damage is driving market sentiment, with experts warning that if the conflict extends beyond three to four weeks, oil prices could surge sharply due to delivery bottlenecks rather than storage limits.

Looking Ahead

In the short term, if de-escalation occurs via diplomacy, the disruption may remain manageable with limited traffic persisting. However, the insurance-driven de facto closure could sustain price increases on delays. For the long term, a sharp surge in prices is possible if deliveries stall for weeks, with tail risks including unprecedented Gulf targeting. Base case projections suggest at least a week of disruption, but market watchers are closely monitoring vessel flows and OPEC moves for signs of relief. This situation parallels Red Sea issues but involves higher volumes, highlighting broader vulnerabilities in global energy supply chains.

Correction: An earlier version misstated the date of the OPEC+ meeting; it is scheduled for April 5, not March 15.