The joint U.S. and Israeli attack on OPEC member Iran risks a major oil supply disruption in the Middle East that, in a worst-case scenario, could trigger a global economic recession.
Iran is the fourth-largest oil producer in OPEC at just over 3 million barrels per day in January. The Islamic Republic shares a coastline with the Strait of Hormuz, the world’s most important waterway for the global oil trade.
The oil market has long shrugged off the risk of an oil supply disruption in the Middle East. Traders are underestimating the threat that Iranian retaliation to the U.S. attack poses to the market, said Bob McNally, a former White House energy advisor to former President George W. Bush.
“This is the real deal,” said McNally, founder and president of Rapidan Energy. Crude oil future prices will likely rise by $5 to $7 per barrel when trading opens at 6 p.m. ET Sunday as the market prices in some risk, he said.
On Friday, Brent crude prices settled at $72.48 a barrel, up $1.73, or 2.45%, while U.S. West Texas Intermediate crude finished at $67.02 a barrel, up $1.81, or 2.78%.
Iran could try to scare President Donald Trump by making the Strait of Hormuz unsafe for commercial traffic, which could spike oil prices above $100 per barrel, McNally said. The market does not appreciate the fact that Tehran has large stockpiles of mines and short-range missiles that could seriously disrupt traffic in the waterway, he said.
More than 14 million barrels per day flowed through the Strait in 2025, or a third of the world’s total seaborne crude exports, according to data from energy consulting firm Kpler. About three-quarters of those barrels went to China, India, Japan and South Korea. China, the world’s second-largest economy, receives half of its crude imports from the Strait.
“A prolonged closure of the Strait of Hormuz is a guaranteed global recession,” McNally said.
More than 20 million barrels of crude have been loaded for export today in the Gulf from Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Qatar, said Matt Smith, an oil analyst at Kpler. Some tankers have been observed diverting from passing through the strait, Smith said.
The world’s spare oil capacity comes from the Gulf states and would be unable to pass through the strait in the event of a closure, effectively sealing it off from the market, McNally said. About 20% of the world’s liquid natural gas exports also flow through the strait, mostly from Qatar, and would be unable to be replaced, he said.
“What you would see is hoarding, especially by Asian countries that were big importers of oil and gas when they realized that Hormuz is closed,” McNally said. “You would see the mother of all bidding wars.”
Oil prices would have to rise high enough to trigger an economic downturn that reduces demand to balance the market, the analyst said. “There just isn’t enough discretionary or elastic demand for oil,” he said.
Only a small fraction of the crude that passes through the strait might be able to be redirected, McNally said. The Saudis have a pipeline that spans the country from the East to its Western coast on the Red Sea. The UAE has a pipeline that terminates at the Gulf of Oman, bypassing the Strait of Hormuz.
Iran has launched missile strikes on U.S. bases in Qatar, Kuwait, the UAE and Bahrain, according to state media reports. These attacks could affect traffic through the Strait of Hormuz, said Tom Kloza, principal at oil and gas consulting firm Kloza Advisors.
“The attack by Iran on other neighbors in the Persian Gulf changes the calculus and the extent of the assaults put pressure on insurers to either aggressively raise tanker rates for Strait of Hormuz travel or balk at underwriting any traffic,” Kloza said.
The Trump administration could tap the Strategic Petroleum Reserve if oil prices spike, said Kevin Book, managing director of Research at ClearView Energy Partners. The reserve currently has an inventory of about 415 million barrels, according to data from the Department of Energy.
“But we’ll say it again: in supply crises, duration matters. Scale does, too,” Book told clients in a note Saturday. “A full Hormuz crisis could outstrip offsets provided by strategic stocks in the U.S. and International Energy Agency (IEA) members.”