A prolonged closure of the Strait of Hormuz poses the single biggest threat to global energy markets in decades, according to a New Horizons report from Wood Mackenzie, Talking the Strait: Iranian War Scenarios and the Future of Energy. Production of more than 11 million barrels per day of crude oil and condensate in the Gulf is currently curtailed. Meanwhile, more than 80 million tons per year of LNG supplies, equivalent to about 20% of global supplies, remain unavailable to global markets.
In her new report, Wood Mackenzie shares three distinct scenarios: quick peace, summer settlement, and prolonged disruption. Each scenario presents a different timeline for ending the conflict and reopening the strait and assessing the potential impact on oil and gas supplies, prices, energy demand and the broader global economy.
“The Strait of Hormuz is the most important choke point in global energy markets, and a prolonged closure will become much more than just an energy crisis,” said Peter Martin, head of economics at Wood Mackenzie. “The longer the disruption lasts, the greater the impact on energy prices, industrial activity, trade flows and global economic growth.”
fast peace
Under the most optimistic “quick peace” scenario, a workable peace agreement is reached in the near term, and the strait is reopened by June. The global economy broadly returns to its pre-war path by the last quarter of 2026.
Crude oil prices are falling sharply after a deal was reached, with dated Brent crude falling to around US$80 per barrel by the end of 2026 and then falling further to US$65 per barrel in 2027 as the oil market returns to oversupply.
Global GDP growth slows from 3% in 2025 to 2.3% in 2026, with the recession limited to the Middle East. The global economy broadly returns to its pre-conflict path by the last quarter of 2026.
Summer settlement
The “summer settlement” scenario assumes the ceasefire holds but negotiations extend into late summer, with the strait remaining largely closed until September.
Oil and LNG supply shortages continue into the third quarter of 2026, leading to a shallow global recession in the second half of 2026. Global GDP growth falls to less than 2% in 2026, resulting in modest but lasting economic scarring compared to the pre-war baseline.
Prolonged disturbance
Under the most severe scenario, the strait remains largely closed until the end of 2026, with recurring tensions leading to periods of renewed conflict and persistent supply disruptions. Wood Mackenzie’s analysis indicates:
• Brent crude prices could approach US$200 per barrel by the end of 2026, despite global oil demand falling by 6 million barrels per day on an annual basis in the second half of 2026
• More than 11 million barrels per day of crude oil and condensate production remains halted, and global oil inventories continue to decline. Diesel and jet fuel prices could rise to US$300 per barrel in major refining hubs by the end of the year
• The global economy could contract by up to 0.4% in 2026, marking the third global recession this century, with major economic impacts.
• Oil and gas importing countries can intensify their efforts to reduce their dependence on imports by aggressively pursuing faster electrification
The regional economic impact will be severe and uneven. The Middle East could see its GDP contract by 10.7% in 2026, while GDP in the EU27 declines by 1.5% in 2026 and 0.5% in 2027. US GDP growth will fall to less than 1% in both years, while Chinese GDP growth will slow to 3% in 2026.
“The long-term outlook points to structurally weaker oil prices than before the conflict if importing countries accelerate efforts to reduce oil dependence,” said Alan Gelder, senior vice president, refining, chemicals and oil markets at Wood Mackenzie.
“If electrification progresses more strongly and oil imports are displaced, this will add further downward pressure on prices, with Brent likely heading US$10 per barrel lower than the quick peace scenario in the medium/long term. However, this forecast is challenged by the pace of the energy transition and rising energy costs for oil-importing economies seeking to reduce dependence on hydrocarbons.”
The LNG market faces prolonged disruption and structural change
The report concludes that the global LNG market faces varying degrees of disruption under each of the three scenarios.
Even with a quick peace, LNG markets remain tight until summer 2027, as Gulf export facilities gradually recover and construction delays slow the next wave of supply growth from the region.
A major global expansion of LNG is still underway, and supply is expected to increase by about 200 million tons per year by 2031, nearly 50% above current levels. The expected oversupply is delayed rather than eliminated.
Wood Mackenzie expects that cancellation of US LNG shipments may eventually be required to rebalance the market, with European TTF prices in the early 2030s rising to nearly half their 2026 levels of around US$14 per mmBtu. Then prices start to recover until 2035.
Under an extended disruption scenario, the market outlook becomes significantly riskier.
Some of the current 85 million tons per year of LNG supply in the Gulf could be lost permanently, while about 75 million tons per year of capacity currently under construction faces multi-year delays. As a result, global LNG supplies could be on average 70 million tons per year lower than expected before the conflict.
“Continued supply uncertainty will accelerate efforts to diversify away from imported LNG, supporting coal resilience and faster growth in renewables and electricity across Asia and Europe,” said Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie. “LNG prices will remain high through 2030 to support investments in new LNG outside the Gulf, but lower long-term demand would threaten to undermine the industry’s future prospects.”
A more fragmented global energy system
Beyond the immediate supply shock, Wood Mackenzie notes that a prolonged conflict could accelerate structural changes in global energy markets.
Even after the Strait reopens, intermittent disruption could persist and enhance geopolitical risks associated with oil and LNG trade flows, creating a more volatile pricing environment and increasing pressure on import-dependent economies to enhance energy security.
In a scenario of extended disruptions, countries across Europe and Asia are stepping up efforts to reduce hydrocarbon dependence by accelerating the electrification process. At the same time, resource-rich producers outside the Gulf, including US LNG exporters, are benefiting from growing demand to diversify supply.
The report also highlights the growing strategic importance of critical minerals supply chains, as accelerating electrification and deployment of renewable energy increases demand for needed minerals via clean energy technologies.
“The consequences of prolonged disruption will extend beyond energy markets,” Martin concluded. “It will simultaneously test the resilience of global trade, industrial supply chains and economic growth, reinforcing the urgency of a solution.”
Source: Wood Mackenzie
