International Oil Shipments Disrupted
Global oil prices surged following this weekend’s joint U.S.-Israeli strikes on Iran’s military infrastructure and senior leadership, notably killing Iran’s Supreme Leader Ayatollah Ali Khamenei as well as many other high-ranking officials. In retaliation, Iran has launched missile and drone attacks on military and civilian targets across the Gulf states, including Saudi Aramco’s Ras Tanura refinery. Oil and gas facilities throughout the region have initiated precautionary shutdowns due to the escalating conflict, and amid mounting risks to maritime transit, the Strait of Hormuz is effectively closed. As of writing, ICE Brent futures are trading over $84/bbl, up more than 15% from Friday’s close.
The countries bordering the Persian Gulf represent a critical pillar of global oil supply. According to the International Energy Agency, crude oil production in Saudi Arabia, United Arab Emirates, Iraq, Kuwait, Iran, Qatar, and Bahrain averaged 25.3 MMb/d in 2025 (roughly 31% of global petroleum liquids supplied). The region is also a leading hub for refining, with over 7.1 MMb/d of capacity situated along the Gulf. To reach global markets, supplies must pass through the Strait of Hormuz, a critical pinch point that Iran has long threatened to shut in the event of war.
The importance of the Strait of Hormuz cannot be overstated. Asia-Pacific demand centers are acutely exposed to a disruption here. In fact, virtually all of Japan’s crude oil imports pass through the Strait, as does nearly 70% of South Korea’s and 42% of China’s. Turning to the West, these figures drop significantly. Gulf producers make up approximately 12% of crude oil and refined product imports in OECD Europe. The United States today imports only 8% of its crude oil and refined products from Gulf producers, down from 16% in 2015. Nevertheless, despite the limited direct impact on Western markets, the indirect impact from the drop in supply to global markets will be felt at the pump as prices rise globally.
Scrambling for Supply
As prices surge, questions naturally arise about where additional supplies can be found to make up for the near-term shortfall. Over the weekend, OPEC+ announced production increases of 206 Mb/d beginning in April, but this provides little relief when most of that production is already locked within the Gulf. Saudi Arabia could potentially divert a portion of its exports to the Red Sea port of Yanbu via the East-West pipeline, but this will likely face constraints as well, especially if Iran-aligned Houthi militants in Yemen resume targeting of vessels transiting the Gulf of Aden. Indeed, we have already seen Iranian proxies in Lebanon enter the conflict, and it may only be a matter of time before the Houthis enter the conflict as well.
Depending on the duration and scope of the conflict, global oil markets could experience a sharp spike in prices followed by a rapid decline, particularly if the U.S. and its allies are able to quickly assert control over the Gulf and restore safe passage. In the worst-case scenario, however, Iran and its proxies may persist in targeting critical infrastructure and shipping with sporadic missile and drone attacks, prolonging disruption and market volatility. In either case, strategic petroleum reserves are likely to be drawn down to alleviate the immediate supply shortfall. China has been aggressively growing its strategic reserves over the past year and will likely unwind some of this recent stockpiling.
Additional supplies could also be brought online from the U.S., but volumes are likely to be inadequate in the near term and take time to ramp up. Upstream development in the U.S. has been decelerating over the past two years, as oil prices softened amid expectations of global oversupply. With the price of WTI staying mostly rangebound between $55/bbl and $65/bbl over the last six months of 2025, U.S. producers have been reluctant to deploy significant capital.
As markets tighten in the near term, the hesitancy to drill will likely diminish among U.S. producers, opening the door to increased capital expenditures. Here, we see producers in the Delaware and Midland basins heeding the call first. It is in these basins where the most low-cost drilling inventory remains among major U.S. producing regions.
Key among the major U.S. producers with robust inventory positions in the basins above include ExxonMobil, Diamondback, Permian Resources, Occidental Petroleum, and ConocoPhillips in the Midland, and ConocoPhillips, Devon Energy, Mewbourne Holdings, Permian Resources, and Coterra in the Delaware.
Limits to U.S. Supply Response Amid Prolonged Disruption
While the crisis presents an opening for U.S. producers, the reality is that increased domestic drilling cannot quickly or fully offset the supply shock created by the ongoing disruption. Expansion of tight oil and gas production will be determined by careful budgetary planning and supply-chain constraints, in addition to the economic viability of the remaining drilling inventory. Strategic petroleum reserve releases can temporarily cushion the blow, but elevated prices and volatility are likely to persist as long as Gulf exports remain constrained. In this environment, U.S. producers are better positioned than most to respond, yet their ability to stabilize markets is limited.
Be sure to check back in for more Energy Market Insights as we continue monitoring the crisis and its effects on global energy markets.
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