Fitch Ratings-London: The effective closure of the Strait of Hormuz, the key driver of oil price increases following the 28 February outbreak of the Iran conflict, is likely to be temporary given its vital economic role, Fitch Ratings says. This, alongside global oil market oversupply, should limit oil price rises and mitigate any potential disruptions to Iranian oil supply. We do not expect significant upside to our December 2025 assumption of an average Brent oil price of USD63/bbl for 2026.
The strait is not formally closed but vessels are increasingly avoiding it given the risk of attack by Iran or its proxies. Oil majors have halted shipments for safety reasons, and insurers are cancelling war risk cover for vessels. However, we expect this effective closure of the strait to be temporary. It is a vital artery for seaborne oil transportation, with limited alternative routes.
Prior to the conflict, around 20 million barrels per day (MMbpd) of crude oil and petroleum products transited the strait, accounting for about a quarter of global seaborne oil trade and a fifth of global oil consumption. About half of the oil volumes transported through the strait are exports from Saudi Arabia and the UAE, with the remainder from Iraq, Kuwait and Iran. About half of these exports go to China and India. A protracted closure would affect both exporting and importing countries and therefore is not our baseline assumption. If the strait were to remain effectively closed for a protracted period, naval protection for tanker navigation could be considered, as occurred during the 1980s Iran–Iraq war.
In addition, the global oil market is oversupplied, which should limit the geopolitical risk premium and cap risks to oil price increases. Global supply growth exceeded demand growth in 2025. Fitch expects this trend to continue in 2026. Supply increased by about 3MMbpd in 2025, while demand grew by well below 1MMbpd. We forecast supply growth of 2.4MMbpd in 2026, with demand growth of about 0.8MMbpd. Half of 2025-2026 supply increases come from unaffected non-OPEC+ producers. OPEC+ spare production capacity is 4.3MMbpd.
In addition, global observed oil inventories rose by 1.3MMbpd in 2025 to reach their highest level since March 2021. Total global inventories stood at 8.2 billion barrels at end-2025. This is sufficient to cover a halt in oil shipments via the Strait of Hormuz for over 400 days.
Saudi Arabia and the UAE have some infrastructure to bypass the strait, which may mitigate transit disruptions. Saudi Aramco (Saudi Arabian Oil Company; A+/Stable) operates the 5MMbpd East–West crude oil pipeline to an export port on the Red Sea. The UAE operates a 1.5MMbpd capacity pipeline linking its oil fields to the Fujairah export terminal on the Gulf of Oman with a maximum achieved flow of 1.8MMbpd.
While Iran is a sizeable oil producer, producing about 3.5MMbpd and exporting about 2MMbpd, it accounts only for about 3.5% of global crude oil production. This means that potential supply disruption would be offset by global market oversupply.
However, the duration and intensity of the increasingly regional conflict remain uncertain. Any protracted blockage of the strait or material and sustained damage to the region’s oil and gas production and transportation infrastructure would materially affect oil markets and likely result in a more material rise in our base case 2026 oil price assumption. Oil price volatility would rise if there were to be any material disruption to Iranian oil production.
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