Strait of Hormuz closure: three months on, 14 mb/d of Gulf supply lost

The Strait of Hormuz — the narrow shipping lane through which roughly one-fifth of the world's oil once flowed — enters its third month of effective closure this week, and the toll on global markets continues to mount. What began as a military confrontation between Iran and the US-Israel coalition in late February has become the most severe supply disruption in the history of the global oil market, according to the International Energy Agency.

The scale of the disruption. The IEA's May Oil Market Report estimates that total supply losses since February have reached 12.8 million barrels per day. Gulf state output — encompassing Saudi Arabia, Iraq, the UAE, Kuwait, Qatar, and Bahrain — is running 14.4 million bpd below pre-war levels. Global oil supply fell by a further 1.8 million bpd in April to 95.1 million bpd, following an unprecedented 10.1 million bpd collapse in March. The IEA has characterised the situation as the "greatest global energy security challenge in history."

The EIA's April Short-Term Energy Outlook estimated that Iraq, Saudi Arabia, Kuwait, UAE, Qatar, and Bahrain collectively shut in 7.5 million bpd of crude production in March, rising to 9.1 million bpd in April. These figures represent actual production shut-ins on top of the trade flows blocked by the strait closure, meaning the total market impact compounds both dimensions simultaneously.

Inventories draining at record pace. Global observed oil inventories fell by 85 million barrels in March alone, with stocks outside the Middle East Gulf drawn down by a significant 205 million barrels (-6.6 million bpd) as flows through the strait were choked off. The EIA projects global inventories will decline at an average rate of 8.5 million bpd through Q2 2026, with the market remaining in deficit until at least Q4 2026.

FACT: Barclays estimates that even if the Strait of Hormuz were to fully reopen today, inventories in the most optimistic scenario would sit roughly 20 million barrels below the tightest level in recent history. The starting point for any recovery is already dangerously low.

The IEA estimates 246 million barrels have been drawn from inventories since the war began, leaving what the agency describes as a "perilously thin buffer against further shocks." Floating storage in the Middle East Gulf has risen by 100 million barrels as trapped cargoes accumulate with no outlet, while onshore crude stocks in the region are up by 20 million barrels — which could provide some near-term relief upon reopening, but adds no supply to a parched global market today.

Volatility spikes. Brent crude implied volatility — a measure of expected price swings derived from options markets — hit its highest level since the conflict's first days, reflecting extraordinary uncertainty over whether, when, and at what terms the strait might reopen. Prices have swung violently within a $104–$109 range since early May, with each diplomatic headline triggering sharp intraday moves.

Brent futures touched $138/bbl on April 7, the highest intraday print since 2008, before retreating as ceasefire hopes emerged. The subsequent six weeks of fragile diplomacy have seen prices oscillate between $100 and $110 as markets price in a low-probability but high-impact peace scenario against a high-probability status quo of continued disruption.

Peace talks stall. A fragile ceasefire took effect on April 8, but diplomatic progress has been halting. US Secretary of State Marco Rubio noted "some encouraging signs" in mid-May, and Pakistani mediators have shuttled between Washington and Tehran. However, fundamental disagreements persist over the fate of Iran's uranium stockpile and the terms of control and transit fees for the Strait of Hormuz. A senior Iranian source told Reuters that "gaps have narrowed," but the countries remain divided on core issues.

Six weeks into the ceasefire, the strait remains effectively shut. Head of the UAE's state oil firm ADNOC warned that full oil flows through the Strait would not return before the first or second quarter of 2027 — even if the conflict ends now.

Price outlook. The EIA's May STEO forecasts Brent will average ~$106/bbl in May-June, easing as production shut-ins slowly abate, but maintaining a risk premium throughout the forecast period. Barclays holds its 2026 Brent forecast at $100/bbl but notes risks "skew higher." BMI, a unit of Fitch Solutions, raised its average 2026 dated Brent forecast to $90 from $81.50, reflecting the supply deficit and the six-to-eight-week post-conflict normalisation window. Saudi Aramco CEO Amin Nasser has warned that a full return to market stability could take until 2027.