With more than 80 million tons per year of LNG supply inaccessible to global markets, representing about 20% of global supply, a closure of the Strait of Hormuz has the potential to trigger the biggest energy supply shock in decades, according to Wood Mackenzie, an energy intelligence group, which asserts that oil prices could reach $200 per barrel in a worst-case scenario, as more than 11 million barrels per day (b/d) continue to reduce Gulf supplies of crude oil and condensate.
Wood Mackenzie’s new Horizons report highlights this for a long time Closing the Strait of Hormuz He poses the single biggest threat Global energy markets In decades, outlining three distinct scenarios:Quick peace,”Summer settlement,’ and ‘Prolonged disturbance“, which offers a different timeline for ending the conflict and reopening the waterway, as the company assesses the situation Potential impact on Oil and gas suppliesEnergy prices and demand and the broader global economy.
Peter MartinHead of Economics at Wood Mackenzie commented: “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.”. The longer the disruption lasts, the greater the impact on energy prices, industrial activity, trade flows and global economic growth.
Within “Quick peaceThe scenario is that a workable peace deal is reached in the near term, and the strait is reopened by June, enabling the global economy to return broadly to its pre-war path by the fourth quarter of 2026. As a result, crude oil prices end up falling sharply after an agreement is reached, with Brent crude falling to around $80 per barrel by the end of 2026, then falling further to $65 per barrel in 2027 as the oil market returns to oversupply.
The Energy Information Group asserts that in this scenario, global GDP growth would slow from 3% in 2025 to 2.3% in 2026, with the recession limited to the Middle East, and with the global economy returning to its pre-conflict path by the last quarter of 2026.
Company’Summer settlementThe scenario assumes the ceasefire will hold, but negotiations extend into late summer, with the strait remaining largely closed until September. In this situation, oil and LNG supply shortages persist into the third quarter of 2026, leading to a shallow global recession in the second half of 2026, while global GDP growth falls to less than 2% in 2026, leading to modest but lasting economic scarring compared to the pre-war baseline.
under ‘Prolonged disturbance“, the company’s riskiest scenario, the Strait of Hormuz 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 suggests that Brent crude prices could approach $200 per barrel by the end of 2026, despite global oil demand falling by 6 million barrels per day year-on-year in the second half of 2026.
This analysis indicates that more than 11 million barrels per day of crude oil and condensate production remains halted and that global oil inventories continue to decline, as diesel and jet fuel prices could rise by about $300 per barrel in major refining centers by the end of the year, while the global economy could contract by up to 0.4% in 2026, marking the third global recession this century, with major economic implications.
Wood Mac explains that oil and gas importing countries could intensify their efforts to reduce their dependence on imports by aggressively pursuing faster electrification, with the regional economic impact likely to be severe and uneven, as the Middle East could see its GDP contract by 10.7% in 2026. While the EU’s GDP declines by 1.5% in 2026 and 0.5% in 2027, GDP growth declines. US to less than 1% in both years, and China’s GDP. Growth will slow to 3% in 2026.
Alan GilderSenior Vice President of Refining, Chemicals and Oil Markets at Wood Mackenzie noted: “The long-term outlook suggests that oil prices are structurally weaker than in our pre-conflict base case if importing countries accelerate their efforts to reduce oil dependence..
“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 outlook is challenged by the pace of the energy transition and rising energy costs for oil-importing economies seeking to reduce dependence on hydrocarbons.”
LNG market In store for Prolonged disturbance
Wood Mackenzie report finds that the global LNG market is facing Varying degrees of disorder Under each of the three scenarios, with “Quick peacePointing to that LNG markets remain tight Until summer 2027, with Gulf export facilities gradually recovering and construction delays slowing the next wave of supply growth from the region.
The company confirms that a significant global expansion of LNG is still underway, with supply expected to increase by approximately 200 million tons per year by 2031, approximately 50% above current levels, but the expected oversupply is expected to be delayed rather than eliminated.
The company expects that it may eventually be necessary to cancel US LNG shipments to rebalance the market, with European TTF prices in the early 2030s reaching nearly half of 2026 levels at around $14 per mmBtu, but prices are then expected to recover through 2035.
Under WoodMac’sProlonged disturbanceIn this scenario, the market outlook becomes significantly riskier, with some of the current 85 million tons per year (MTPA) LNG supply in the Gulf likely to be lost permanently, while about 75 million tons per year (MTPA) of capacity currently under construction faces multi-year delays. This means that global LNG supplies may be on average 70 million tons per year lower than expected before the conflict.
Massimo di OddardoVice President of Gas and LNG Research at Wood Mackenzie said: “Continuing supply uncertainty will accelerate efforts to diversify away from imported LNG, supporting coal’s resilience and accelerating growth in renewables and electricity across Asia and Europe..
“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.”
Further segmentation of the energy market is on the cards
Wood Mackenzie notes that a prolonged conflict could accelerate structural changes in global energy markets beyond the immediate supply shock, as intermittent outages could continue even after the reopening of the Strait of Hormuz, enhancing geopolitical risks associated with both oil and liquefied natural gas (LNG) trade flows, creating a more volatile pricing environment, and increasing pressure on import-dependent economies to enhance energy security.
Within “Prolonged disturbanceIn this scenario, the company’s analysis indicates that countries across Europe and Asia are stepping up their efforts to reduce dependence on hydrocarbons by accelerating the transition to electricity. At the same time, resource-rich producers outside the Gulf, including US LNG exporters, are benefiting from growing demand to diversify supply.
The company’s report highlights the growing strategic importance of critical minerals supply chains, as faster electrification and deployment of renewable energy drive demand for minerals needed via clean energy technologies.
Martin concluded: “The consequences of prolonged disruption will extend beyond energy markets. It would test the resilience of global trade, industrial supply chains and economic growth simultaneously, reinforcing the urgency for a solution.
Boost your brand with marine energy ⤵️
Steal the spotlight and establish your brand in the heart of the outside world!
Join us to make a greater impact and grow your presence at the center of the marine energy community!
