The military standoff in the Hormuz escalates: the global energy lifeline is in danger, and oil prices are at a crossroads.
2026-03-02 18:37:20
Military standoffs near the Strait of Hormuz in the Middle East continue to escalate. This crucial waterway, hailed as the "carrier" of global energy, has seen its situation evolve from diplomatic friction into a substantial obstruction of the shipping route. Consequently, the international oil market has been plunged into a fierce battle over pricing power regarding "risk premiums."
The market is currently at a crossroads, with short-term, impulsive rallies similar to last year's "12-day conflict" on one side, and a structurally high oil price era that could completely reshape the global inflation trajectory on the other.
The irreplaceable energy "carotid artery": the strategic importance of the Hormuz
Before analyzing oil price trends, it is essential to recognize the strategic uniqueness of the Strait of Hormuz. This waterway, connecting the Persian Gulf and the Arabian Sea, is only about 33 kilometers wide at its narrowest point, yet it is the lifeline of global oil trade—approximately 17 to 18 million barrels of crude oil pass through it daily, accounting for 20% to 21% of global seaborne oil trade. At the same time, about 20% of the world's liquefied natural gas (LNG) also relies on this route, with the vast majority flowing to Asia, a region with high energy demand.
Existing alternative routes are simply insufficient to fill the gap: Saudi Arabia's East-West Petroline has a daily transport capacity of approximately 5 million barrels, which can only divert a portion of the crude oil; the UAE's Habshan-Fujairah pipeline, with a maximum daily capacity of about 1.5 million barrels, is even more woefully inadequate. If the Hormuz pipeline is completely blocked, a physical gap will emerge in the global oil supply chain that is difficult to fill.
It is precisely this structural vulnerability of "having no other choice" that gives this round of geopolitical crisis a market deterrent power far exceeding that of ordinary conflicts.
Historical Mirror: The Logic Behind Short-Term Impulsive Rallies
Capital Economics paints an "optimistic pessimistic scenario": if the conflict continues last year's "quick in, quick out" pattern, oil prices will only experience emotional volatility rather than a structural pricing restructuring.
Their senior energy analyst noted, "During the standoff between Iran and Israel last year, oil prices quickly priced in a risk premium of $10-15 per barrel, but the premium quickly receded as energy flows through the Straits resumed in the short term and infrastructure was not permanently damaged."
The core of this assessment lies in the fact that the current oil market remains shrouded in a macroeconomic backdrop of weak demand. Slowing global economic growth, a strong US dollar, and steadily increasing penetration of new energy sources are triple pressures that have created a structural ceiling for oil price increases. As long as physical supply does not experience a substantial disruption, speculative funds will take profits after a brief surge, and oil prices, like a jolted spring, will likely return to the equilibrium range of $70-80 per barrel after a brief rally.
Institutional Divergence: Goldman Sachs and Citigroup Warn of a "Protracted Premium War"
Not all institutions agree with the "rapid recovery" logic. Goldman Sachs raised doubts in its latest client report, pointing out the key reason for the market's undervaluation—the stickiness of shipping insurance premiums.
Goldman Sachs believes the geopolitical environment in 2026 will be more complex than last year, and risk premiums may shift from short-term fluctuations to a long-term norm. Even if the Taiwan Strait is not physically blocked, continued military standoffs will drive up global shipping insurance and logistics costs, directly impacting oil prices. The current situation has already injected at least $18 of geopolitical premium into Brent crude oil; if the conflict drags on, this premium will become part of the benchmark price, forcing global refineries to operate at higher costs.
This logic is supported by history: when tensions were high in the Hormuz in 2019, war risk premiums on the Persian Gulf route soared to more than 10 times the normal level, and the decline was much slower than that of oil prices, forming a "tail premium" that continued to support operating costs for a long time after market sentiment eased.
Citigroup added from the perspective of supply elasticity: the "safety cushion" of the current global oil market continues to thin. Although OPEC+ has about 3.5 million barrels per day of spare capacity, most of this capacity is concentrated along the Persian Gulf coast, and it will also face transportation difficulties if the strait is blocked. Citigroup warned that if the supply risk changes from "possibility" to "long-term," oil prices will remain above $90 for a much longer period than Capital Economics expects.
The overlooked underlying theme: the dual amplifying effect of the US dollar and algorithms.
Besides mainstream institutional analysis, the resonance effect between the US dollar exchange rate and algorithmic trading is a hidden market trend that is easily overlooked.
Crude oil is priced in US dollars, and the two are usually negatively correlated. However, during geopolitical crises, risk aversion can simultaneously push up both the dollar and oil prices, creating a rare "double rise" pattern. This situation occurred at the beginning of the Russia-Ukraine conflict in 2022, when Brent crude oil and the US dollar index strengthened in tandem, compressing the profits of refineries in countries with non-US dollar currencies, accelerating their reduction in imports, and creating a demand-side self-reinforcing effect.
Even more concerning is the role of quantitative funds. Currently, algorithmic funds based on momentum signals and machine learning dominate the liquidity of the crude oil futures market. Once Brent crude oil breaks through key thresholds such as $85, the algorithm could quickly trigger a one-way short squeeze, pushing oil prices far beyond fundamental support levels. This is what the market widely fears as "technical overshooting"—geopolitical risks triggering sentiment, and algorithmic trading amplifying volatility.
Extreme scenario: The risk of stagflation under black swan shocks
If the situation deteriorates to the “serious scenario” warned by Capital Economics—with significant and persistent supply losses—the pricing logic of the oil market will be completely transformed.
JPMorgan's energy team mentioned a key threshold: $100. Only if energy infrastructure suffers irreversible damage will oil prices truly break into triple digits, although this scenario is unlikely but extremely destructive.
A senior trader in Singapore stated, "The strategic petroleum reserve adjustment space of major consuming countries has been significantly reduced compared to a few years ago." Data shows that the US Strategic Petroleum Reserve (SPR) is approximately 370 million barrels, a decrease of nearly 40% from its 2020 peak, and replenishment is slow. If the supply disruption at the Hormuz River lasts for more than a month, the world will face the most severe physical shortage since the oil crisis of the 1970s.
In an extreme scenario, $90-100 is merely the starting point for oil prices. Besides crude oil, 20% of global LNG shipments also rely on this strait. A simultaneous surge in oil and gas prices would subject Eurasia to a double whammy of energy shortages, threatening the global macroeconomy with stagflation—rising inflation alongside stagnant economic growth, leaving central banks in a policy dilemma.
East Asian Perspective: The Most Vulnerable Party Under High Dependence
In this global game, China, Japan, South Korea, and India—especially East Asian countries—are the ones bearing the most direct pressure.
China imports approximately 11 million barrels of crude oil daily, with 42%–45% transported via the Indian Ocean and the Strait of Hormuz. Over 95% of Japan's crude oil imports come from the Middle East, with about 74% passing through the Strait of Hormuz. South Korea relies on the Middle East for over 80% of its crude oil imports, with about 81% transiting the strait. India's crude oil imports via the Strait of Hormuz account for nearly 50%. This high dependence on foreign trade makes these countries extremely sensitive to the situation in the Strait of Hormuz in terms of their terms of trade, currency exchange rates, and even inflation expectations.
It is worth noting that China has established a strategic oil reserve of about 90 days. If the supply disruption lasts only 1-2 months, the impact can be partially mitigated by releasing the reserve and activating the China-Russia crude oil pipeline. However, if the disruption exceeds a quarterly level, the supply pressure will still increase significantly.
Conclusion: The core of game theory and the rational boundaries of the market
Ultimately, the core issue in the current oil market is no longer "whether there is a shortage of oil," but rather "whether it can be safely transported out."
A moderate-intensity conflict would keep risk premiums high, anchoring oil prices in the $70-80 range; while every marginal deterioration in the situation would give Wall Street the possibility of repricing oil prices to $100.
However, the market is not without its rational boundaries: excessively high oil prices will eventually trigger demand destruction—factory production cuts, flight reductions, and reduced consumer travel. Demand shrinks on its own and in turn suppresses oil prices. This is the inherent stabilizing mechanism of the oil market and the reason why periods of sustained high oil prices have been extremely rare in history.
As analysts have put it, "Every oil tanker that stops sailing in the Strait of Hormuz is a bomb dropped on the global inflation market. When there are enough bombs, panic itself becomes the most expensive commodity."
The market is currently at a crossroads, with short-term, impulsive rallies similar to last year's "12-day conflict" on one side, and a structurally high oil price era that could completely reshape the global inflation trajectory on the other.
The irreplaceable energy "carotid artery": the strategic importance of the Hormuz
Before analyzing oil price trends, it is essential to recognize the strategic uniqueness of the Strait of Hormuz. This waterway, connecting the Persian Gulf and the Arabian Sea, is only about 33 kilometers wide at its narrowest point, yet it is the lifeline of global oil trade—approximately 17 to 18 million barrels of crude oil pass through it daily, accounting for 20% to 21% of global seaborne oil trade. At the same time, about 20% of the world's liquefied natural gas (LNG) also relies on this route, with the vast majority flowing to Asia, a region with high energy demand.
Existing alternative routes are simply insufficient to fill the gap: Saudi Arabia's East-West Petroline has a daily transport capacity of approximately 5 million barrels, which can only divert a portion of the crude oil; the UAE's Habshan-Fujairah pipeline, with a maximum daily capacity of about 1.5 million barrels, is even more woefully inadequate. If the Hormuz pipeline is completely blocked, a physical gap will emerge in the global oil supply chain that is difficult to fill.
It is precisely this structural vulnerability of "having no other choice" that gives this round of geopolitical crisis a market deterrent power far exceeding that of ordinary conflicts.
Historical Mirror: The Logic Behind Short-Term Impulsive Rallies
Capital Economics paints an "optimistic pessimistic scenario": if the conflict continues last year's "quick in, quick out" pattern, oil prices will only experience emotional volatility rather than a structural pricing restructuring.
Their senior energy analyst noted, "During the standoff between Iran and Israel last year, oil prices quickly priced in a risk premium of $10-15 per barrel, but the premium quickly receded as energy flows through the Straits resumed in the short term and infrastructure was not permanently damaged."
The core of this assessment lies in the fact that the current oil market remains shrouded in a macroeconomic backdrop of weak demand. Slowing global economic growth, a strong US dollar, and steadily increasing penetration of new energy sources are triple pressures that have created a structural ceiling for oil price increases. As long as physical supply does not experience a substantial disruption, speculative funds will take profits after a brief surge, and oil prices, like a jolted spring, will likely return to the equilibrium range of $70-80 per barrel after a brief rally.
Institutional Divergence: Goldman Sachs and Citigroup Warn of a "Protracted Premium War"
Not all institutions agree with the "rapid recovery" logic. Goldman Sachs raised doubts in its latest client report, pointing out the key reason for the market's undervaluation—the stickiness of shipping insurance premiums.
Goldman Sachs believes the geopolitical environment in 2026 will be more complex than last year, and risk premiums may shift from short-term fluctuations to a long-term norm. Even if the Taiwan Strait is not physically blocked, continued military standoffs will drive up global shipping insurance and logistics costs, directly impacting oil prices. The current situation has already injected at least $18 of geopolitical premium into Brent crude oil; if the conflict drags on, this premium will become part of the benchmark price, forcing global refineries to operate at higher costs.
This logic is supported by history: when tensions were high in the Hormuz in 2019, war risk premiums on the Persian Gulf route soared to more than 10 times the normal level, and the decline was much slower than that of oil prices, forming a "tail premium" that continued to support operating costs for a long time after market sentiment eased.
Citigroup added from the perspective of supply elasticity: the "safety cushion" of the current global oil market continues to thin. Although OPEC+ has about 3.5 million barrels per day of spare capacity, most of this capacity is concentrated along the Persian Gulf coast, and it will also face transportation difficulties if the strait is blocked. Citigroup warned that if the supply risk changes from "possibility" to "long-term," oil prices will remain above $90 for a much longer period than Capital Economics expects.
The overlooked underlying theme: the dual amplifying effect of the US dollar and algorithms.
Besides mainstream institutional analysis, the resonance effect between the US dollar exchange rate and algorithmic trading is a hidden market trend that is easily overlooked.
Crude oil is priced in US dollars, and the two are usually negatively correlated. However, during geopolitical crises, risk aversion can simultaneously push up both the dollar and oil prices, creating a rare "double rise" pattern. This situation occurred at the beginning of the Russia-Ukraine conflict in 2022, when Brent crude oil and the US dollar index strengthened in tandem, compressing the profits of refineries in countries with non-US dollar currencies, accelerating their reduction in imports, and creating a demand-side self-reinforcing effect.
Even more concerning is the role of quantitative funds. Currently, algorithmic funds based on momentum signals and machine learning dominate the liquidity of the crude oil futures market. Once Brent crude oil breaks through key thresholds such as $85, the algorithm could quickly trigger a one-way short squeeze, pushing oil prices far beyond fundamental support levels. This is what the market widely fears as "technical overshooting"—geopolitical risks triggering sentiment, and algorithmic trading amplifying volatility.
Extreme scenario: The risk of stagflation under black swan shocks
If the situation deteriorates to the “serious scenario” warned by Capital Economics—with significant and persistent supply losses—the pricing logic of the oil market will be completely transformed.
JPMorgan's energy team mentioned a key threshold: $100. Only if energy infrastructure suffers irreversible damage will oil prices truly break into triple digits, although this scenario is unlikely but extremely destructive.
A senior trader in Singapore stated, "The strategic petroleum reserve adjustment space of major consuming countries has been significantly reduced compared to a few years ago." Data shows that the US Strategic Petroleum Reserve (SPR) is approximately 370 million barrels, a decrease of nearly 40% from its 2020 peak, and replenishment is slow. If the supply disruption at the Hormuz River lasts for more than a month, the world will face the most severe physical shortage since the oil crisis of the 1970s.
In an extreme scenario, $90-100 is merely the starting point for oil prices. Besides crude oil, 20% of global LNG shipments also rely on this strait. A simultaneous surge in oil and gas prices would subject Eurasia to a double whammy of energy shortages, threatening the global macroeconomy with stagflation—rising inflation alongside stagnant economic growth, leaving central banks in a policy dilemma.
East Asian Perspective: The Most Vulnerable Party Under High Dependence
In this global game, China, Japan, South Korea, and India—especially East Asian countries—are the ones bearing the most direct pressure.
China imports approximately 11 million barrels of crude oil daily, with 42%–45% transported via the Indian Ocean and the Strait of Hormuz. Over 95% of Japan's crude oil imports come from the Middle East, with about 74% passing through the Strait of Hormuz. South Korea relies on the Middle East for over 80% of its crude oil imports, with about 81% transiting the strait. India's crude oil imports via the Strait of Hormuz account for nearly 50%. This high dependence on foreign trade makes these countries extremely sensitive to the situation in the Strait of Hormuz in terms of their terms of trade, currency exchange rates, and even inflation expectations.
It is worth noting that China has established a strategic oil reserve of about 90 days. If the supply disruption lasts only 1-2 months, the impact can be partially mitigated by releasing the reserve and activating the China-Russia crude oil pipeline. However, if the disruption exceeds a quarterly level, the supply pressure will still increase significantly.
Conclusion: The core of game theory and the rational boundaries of the market
Ultimately, the core issue in the current oil market is no longer "whether there is a shortage of oil," but rather "whether it can be safely transported out."
A moderate-intensity conflict would keep risk premiums high, anchoring oil prices in the $70-80 range; while every marginal deterioration in the situation would give Wall Street the possibility of repricing oil prices to $100.
However, the market is not without its rational boundaries: excessively high oil prices will eventually trigger demand destruction—factory production cuts, flight reductions, and reduced consumer travel. Demand shrinks on its own and in turn suppresses oil prices. This is the inherent stabilizing mechanism of the oil market and the reason why periods of sustained high oil prices have been extremely rare in history.
As analysts have put it, "Every oil tanker that stops sailing in the Strait of Hormuz is a bomb dropped on the global inflation market. When there are enough bombs, panic itself becomes the most expensive commodity."
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