The US-Israel war with Iran has enveloped the Middle East oil producers in a conflict not of their choosing. And their O&G business looks to be one of the casualties.
The Strait of Hormuz. The Strait of Hormuz is the key to around 20% of the world’s supply of oil and gas. And with the ongoing US-Israel/Iran war, the oil and gas or O&G business is caught in the conflict’s crossfire with repercussions rippling around the globe like waves from a tsunami.
For example, the virtual closure of the Strait of Hormuz to ship traffic also renders the importance of the Suez Canal to nearly useless as a link connecting Europe-to-Asia via the Mediterranean Sea.
Traffic through the Suez Canal in 2023, the last year of relatively unhindered navigation via the Suez Canal through the Red Sea, was 26,434 ships of 1,568,257 net tons (NT). In 2025 this total had been reduced to 12,758 ships of 522,084 NT. And in 2025 (like other years), easily the largest type (41%) of ships moving through the waterway were carrying O&G commodities — with tankers accounting for 39% and LNG ships another 2% of the total number of ships transiting the Suez Canal.
Not surprisingly, the geographical position of the Strait of Hormuz on the Red Sea route, makes it also the single most critical chokepoint for the movement of oil and gas (O&G) from the Middle East to global markets. All told around 20% of the world’s O&G transits the Red Sea.
And now [at this writing] with the war into its third week, the conflict has enveloped other oil and gas producing nations in the region, endangering more O&G exports and igniting massive price increases of oil and oil products, such as bunkers for ships. According to the energy research company Rystad Energy, “Already, of the Middle East’s 21 million bpd pre-war base, only 12.5 million bpd remains at current levels, a reduction of 40% in just over two weeks. But the 12.5 million bpd [barrels per day] figure is not secure.” [Editor’s Italics] The US attacks on Iran’s Kharg Island facilities, at least for now, seems to have avoided targeting the island’s crude oil export infrastructure — the country’s main oil export terminal. But should Israel-US tactics change and target the Kharg’s oil operations, a significant portion of Iran’s oil exports will stop and the 12.5 million bpd the region is producing, will suddenly drop. Iranian oil exports are around 1.2–1.6 million bpd, although it has at times exported more than 2 million bpd. The last time it was in reaction to the June 2025 US-Israel attack on Iran’s nuclear sites. And (at this writing) the war seems to be widening with each side upping the ante and attacking the others O&G infrastructure in a tit for tat strategy. Iran’s president Masoud Prezeshkain said that the attacks on Iran’s energy infrastructure could lead to “uncontrollable consequences.” And recent events, such as Israel’s attack on the Pars gas fields, missile and drone attacks on Saudi Arabian gas facilities, the missile strike on Qatar’s Ras Laffan’s oil processing infrastructure and the site of the world’s largest LNG production facility, tend to bear out the remarks.
$200 per Barrel? — Impacts of an Oil War
Recent reports indicate that Middle East oil exports have now fallen to between 9.7 million bpd to 7.5 million bpd (depending on the source) with the spate of attacks on the region’s O&G infrastructure.
The immediate impact of the war’s choking off O&G exports has been a spike in oil prices, which at this writing [March 19th] have topped $106 per barrel for the benchmark Brent crude. The price had briefly topped $112 before slipping back. The question is whether this price surge represents the beginning of a real oil shock or a momentary reaction to events — is the unthinkable $200 dollar a barrel a real possibility?
Back on March 11th the International Energy Agency (IEA) following an emergency meeting announced that its 32 members agree to make 400 million barrels from their reserves available to help offset the disruptions. It was the “largest ever oil stock release” by the agency. IEA Executive Director Fatih Birol said, “The oil market challenges we are facing are unprecedented in scale, therefore I am very glad that IEA Member countries have responded with an emergency collective action of unprecedented size.”
Still the question is open as to whether this effort will be enough to stabilize prices and provide sufficient availability.
The Italian think-tank ISPI, in a March 13th newsletter highlighted some of the potential impacts from the cuts in Middle East O&G exports, writing, “A vast share of global energy flows through the Persian Gulf, and around 80% of these flows are directed toward Asia. China alone imported in 2024 roughly 11 million barrels per day, almost half of which originate in the Middle East, and it absorbs nearly 90% of Iran’s oil exports.”
The ISPI report added that China wasn’t the only Asian country exposed as South Korea, Japan, India and Singapore all are heavily dependent on Middle East oil and gas.
The US, as the world’s largest oil producer, is not as exposed as other nations. Although the US imports significant volumes of oil while being a top O&G exporter. Nevertheless, gas and diesel prices have skyrocketed. Diesel fuel has crossed the $5 dollar a gallon threshold, which is bad news for the trucking industry and the American supply chain.
President Trump has declared a 60-day waiver to the Jones Act to allow foreign flag vessels to carry freight (such as oil) between US ports. And while this waiver has been applauded by agricultural and other shipper groups it has been roundly criticized by US flag ship operators and related interests. (See related article: AWO criticizes Trump page 36).
Rerouting O&G
Since the first week of the war there has been active workarounds to devise ways to keep the O&G flowing. For example, Saudi Arabia and the UAE are moving lower volumes via pipelines to terminals outside the Strait of Hormuz, thus avoiding the chokepoint. Saudi Arabia’s East-West pipeline to Yanbu on the Red Sea has the capacity to deliver 5 million bpd. And the pipeline from Abu Dhabi to Fujairah, on the Arabian Sea, can carry 1.5 million bpd. This is significantly less volumes than would normally be routed through the Red Sea and still vulnerable to attack by Iran and potentially Yemen’s Houthis — who thus far have not been an active participant.
As for the Strait of Hormuz traffic, Iran still holds all the cards, although that could change in the near future. The mere threat of attack is enough to deter ship passage. And the attacks are very real. The British military’s UK Maritime Trade Operations (UKMTO) agency reported on March 15 a tanker being struck near the Strait of Hormuz. Tankers, particularly those that the Iranians identify as being allied to Israel and the US, are prime targets. Overall, the UKMTO reported that a total of 21 reports of incidents involving vessels in the Arabian Gulf, Strait of Hormuz and Gulf of Oman since February 28th, when the US and Israel launched their strikes on Iran.
The US wants to get help escorting ships (especially tankers) through the Hormuz chokepoint from NATO and/or the EU and thus far has been rebuffed. Alternatively, Kaja Kallas, EU High Representative for Foreign Affairs and Security Policy, has proposed taking a different tact to the issue by calling for an initiative with the UN under which the passage of O&G through the Strait of Hormuz would be designed similar to the one utilized to enable Ukraine to export grain.
What Lies Ahead
No matter what happens in the next few weeks, months or years - the O&G market in the Middle East and for the world will have changed. The exposure to oil price spikes and disruption of O&G flows will undoubtedly spur more development of energy renewables — especially in the Asian countries most impacted by the tightening of O&G flows. Onshore and offshore wind projects, solar farms and other projects that were deemed uneconomic will get a much closer look with high oil and gas prices.
Equally, there will be a great deal of work necessary to repair the damage to the O&G infrastructure when the shooting stops. And as with the renewables, the threat of higher oil prices will spur more O&G exploration and production. And with that will be an interest to expand oil pipelines to avoid being held hostage by chokepoints as is the case with the Strait of Hormuz.
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