Strait of Hormuz closure: Tight LNG markets, oil prices could soar to $200

With more than 80 million tonnes per annum (mtpa) of liquefied natural gas (LNG) supply, representing around 20% of global supply, being inaccessible to global markets, the Strait of Hormuz closure has the potential to spark the biggest energy supply shock in decades, according to Wood Mackenzie, an energy intelligence group, which emphasizes that oil prices could reach $200 a barrel (bbl) in a worst-case scenario, as over 11 million barrels per day (b/d) of Gulf crude and condensate supply continues to be curtailed.

Wood Mackenzie’s new Horizons report highlights that a prolonged closure of the Strait of Hormuz poses the single greatest threat to global energy markets in decades, while outlining three distinct scenarios: ‘Quick Peace,’ ‘Summer Settlement,’ and ‘Extended Disruption,’ which offer a different timeline for ending the conflict and reopening the waterway, as the firm assesses the potential impact on oil and gas supply, prices, energy demand, and the broader global economy.

Peter Martin, Head of Economics at Wood Mackenzie, commented: “The Strait of Hormuz is the most critical chokepoint in global energy markets, and a prolonged closure would become far more than an energy crisis. The longer disruption persists, the greater the impact on energy prices, industrial activity, trade flows and global economic growth.”

Within the ‘Quick Peace’ scenario, a workable peace agreement is reached in the near term, and the Strait reopens by June, enabling the global economy to broadly return to its pre-war trajectory by Q4 2026. As a result, crude prices end up falling sharply following a deal, with Brent easing to around $80/bbl by the end of 2026 and declining further to $65/bbl in 2027 as the oil market returns to oversupply.

The energy intelligence group underlines that in this scenario, global GDP growth slows from 3% in 2025 to 2.3% in 2026, with a recession limited to the Middle East, as the global economy gets back to its pre-conflict trajectory by Q4 2026.

The firm’s ‘Summer Settlement’ scenario assumes the ceasefire holds, but negotiations extend into late summer, with the Strait remaining largely closed until September. In this oil and LNG supply shortages persist through Q3 2026, driving a shallow global recession in H2 2026, while global GDP growth falls below 2% in 2026, resulting in modest yet permanent economic scarring compared to the pre-war baseline.

Under ‘Extended Disruption,’ which is the company’s most severe scenario, the Strait of Hormuz remains largely closed through the end of 2026, with recurring tensions triggering periods of renewed conflict and sustained supply disruption. Wood Mackenzie’s analysis indicates that Brent crude prices could approach $200/bbl by the end of 2026, despite global oil demand falling by 6 million b/d year-on-year in H2 2026.

This analysis points out that more than 11 million b/d of crude and condensate production remains shut in and global oil inventories continue to decline, as diesel and jet fuel prices could rise towards $300/bbl in major refining centers by year-end, while the global economy could contract by as much as 0.4% in 2026, marking the third global recession this century, with significant economic scarring.

WoodMac elaborates that oil and gas-importing countries could intensify efforts to reduce their import dependence by aggressively pursuing faster electrification, with the regional economic impact potentially being severe and uneven, as the Middle East could see GDP contract by 10.7% in 2026. While EU27 GDP declines by 1.5% in 2026 and 0.5% in 2027, and U.S. GDP growth falls below 1% in both years, China’s GDP growth slows to 3% in 2026.

Alan Gelder, Senior Vice President for Refining, Chemicals & Oil Markets at Wood Mackenzie, noted: “The long-term outlook points to structurally weaker oil prices than in our pre-conflict base case if importing countries accelerate efforts to reduce oil dependence.

“If electrification advances more aggressively and oil imports are displaced, this will add further downward pressure on prices, with Brent potentially trending US$10/bbl lower than the quick peace scenario in the medium/long-term. This outlook is, however, challenged by both the pace of the energy transition and higher energy costs for oil-importing economies that seek to reduce reliance on hydrocarbons.”

Wood Mackenzie’s report finds that the global LNG market faces varying degrees of disruption under each of the three scenarios, with ‘Quick Peace’ pointing out that LNG markets remain tight through summer 2027, as Gulf export facilities recover gradually and construction delays slow the next wave of supply growth from the region.

The company underscores that a major global LNG expansion remains underway, with supply expected to increase by around 200 mtpa by 2031, roughly 50% above current levels, but the anticipated oversupply is expected to be delayed rather than eliminated. 

The firm expects that U.S. LNG cargo cancellations may eventually be required to rebalance the market, with European TTF prices in the early 2030s almost half of 2026 levels of around $14/mmbtu, but prices are then anticipated to stage a recovery through to 2035.

Under WoodMac’s ‘Extended Disruption’ scenario, the market outlook becomes significantly more severe, with some of the Gulf region’s existing 85 mtpa of LNG supply potentially permanently lost, while around 75 mtpa of capacity that is currently under construction faces multi-year delays. This means that global LNG supply could be on average 70 mtpa lower than expected before the conflict.

Massimo Di Odoardo, Vice President of Gas and LNG Research at Wood Mackenzie, stated: “Persistent supply uncertainty would accelerate efforts to diversify away from imported LNG, supporting coal resilience and faster growth in renewables and electrification across Asia and Europe.

“LNG prices would remain elevated through to 2030 supporting investments in new LNG outside the Gulf, but lower long-term demand would risk undermining the industry’s future perspectives.”

Wood Mackenzie suggests that a prolonged conflict could accelerate structural changes across global energy markets beyond the immediate supply shock, as intermittent disruption could continue even after the Strait of Hormuz reopens, reinforcing the geopolitical risk attached to both oil and LNG trade flows, creating a more volatile pricing environment, and increasing pressure on import-dependent economies to strengthen energy security.

Within the ‘Extended Disruption’ scenario, the firm’s analysis indicates that countries across Europe and Asia intensify efforts to reduce hydrocarbon dependence through accelerated electrification. Simultaneously, resource-rich producers outside the Gulf, including U.S. LNG exporters, benefit from growing demand for supply diversification.

The company’s report spotlights the growing strategic importance of critical minerals supply chains, as faster electrification and renewable deployment drive stronger demand for metals needed across clean energy technologies.

Martin concluded: “The consequences of an extended disruption would extend well beyond energy markets. It would test the resilience of global trade, industrial supply chains and economic growth simultaneously, reinforcing the urgency of achieving a resolution.”

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