The situation in Iran ignites the "oil nightmare": If the Strait of Hormuz is cut off, it may trigger oil prices to soar past hundred dollars! LNG may also test historical high prices.

The attack launched by the United States against Iran over the weekend has once again sparked deep concerns in the market about the possible disruption of oil transportation through the Strait of Hormuz. The oil market is currently on high alert, working to prevent potential supply shock risks. With the escalation of geopolitical tensions, the potential scenario that was once seen as an "oil market nightmare" is now transitioning from abstract risk to real pressure - all parties are racing against time to take measures to mitigate potential supply shocks. While analysts generally expect oil prices to have an "instinctive" immediate reaction when trading resumes in the New York market on Sunday night, the more critical issue is whether the geopolitical tensions will escalate and lead to sustained disruptions in oil exports from the Persian Gulf. "From what we can see now, it appears that we are facing a comprehensive military conflict between the US and Iran, which would be unprecedented, and the direction of the conflict is difficult to assess," said Vandana Hari, CEO of energy research company Vanda Insights. Hari said, "If the conflict continues for several days, and Iran and its proxies retaliate in full force, we will face the worst-case scenario for the oil market, including a significant disruption in Middle East oil transportation" - unless the US can preemptively disable Iran's navy and armed forces, and ensure the normal passage of oil tankers through the Strait of Hormuz. Criticality of the Strait of Hormuz As tensions escalate, market attention has returned to the Strait of Hormuz; any disruption would have an immediate and disproportionate impact on global oil and liquefied natural gas flows. The strait, located between Oman and Iran, is a critical transport channel for global crude oil and a potential chokepoint. Kpler data shows that around 13 million barrels of crude oil pass through the strait daily, accounting for 31% of all seaborne oil traffic. It connects major oil-producing countries in the Persian Gulf such as Saudi Arabia, Iran, Iraq, and the United Arab Emirates to the Gulf of Oman and the Arabian Sea. Approximately one-fifth of the world's oil and liquefied natural gas typically flows through the Strait of Hormuz every day. Once oil tanker traffic in this chokepoint is disrupted, what cost will it take to get the fleets that are increasingly gathering and lingering near the entrance of the waterway back on course - and when will this be achievable? Over the weekend, there was a series of chaotic signals regarding the situation in the Strait of Hormuz. The US first issued broad warnings to shipping in the Middle East, prompting a major shipowner to use this as a reason to steer clear of the area; while Iran seemed to start announcing the closure of the strait through broadcasts late on Saturday. On Sunday, a senior official said US vessels were not allowed to enter the Gulf, but Iranian Foreign Minister Abbas Araghchi later stated that Iran had no intention of closing the Strait of Hormuz and had maintained its openness, but also acknowledged attacking three oil tankers that day. Currently, as companies wait for clarity on the security situation in the region, oil tankers continue to accumulate outside the waterway. Two insurance companies have privately stated that they expect significantly higher docking fees at Persian Gulf ports. While the number of visible signals from ships' transponders has decreased, there are still a few vessels seemingly crossing the Strait of Hormuz and resuming broadcasts after leaving the strait. With the spread of conflict and the US announcing the establishment of a maritime security zone, shipowners and traders have voluntarily suspended operations. Reports indicate that a senior official from the European Union naval task force "Aspides" said commercial ships received very high-frequency radio warnings from Iran's Revolutionary Guard stating, "No ships are allowed to pass through the Strait of Hormuz." The official said Tehran had not formally confirmed any order to close the waterway. Worst-case scenario analysis Iran has threatened to block this narrow passageway many times over the years in response to attacks against the Islamic Republic. Bob McNally, president of the Rapidan Energy Group, has been warning clients for weeks about a 75% probability of conflict, noting that given the global oil and gas markets' reliance on production and transport in the Strait of Hormuz, the situation is "extremely serious." Industry veterans emphasize the broader issue of duration. McNally stated that the extent of the spike in oil and liquefied natural gas prices will depend on the duration and scope of disruption to Persian Gulf production and transportation. Analysts point out that the potential scenarios have expanded from a "limited interruption of Iranian oil exports" to an extreme case of a "complete blockade of the Strait of Hormuz." The core concern of the global market is not only the loss of Iranian oil supply - the more severe crisis is the systemic collapse of the global energy supply chain if the closure of this strategic strait's shipping is expanded. "Preliminary signs suggest that the attack on Iran this time is larger in scale, and retaliation could escalate and involve multiple Gulf countries," said Saul Kavonic, head of energy research at MST Marquee. Kavonic stated that initially, markets would price in a range of risks - from Iran's daily export loss of up to 2 million barrels, to attacks on regional infrastructure, or in extreme cases, a shutdown of traffic through the Strait of Hormuz. "If the Iranian regime feels threatened with its survival and attempts to close the Strait of Hormuz, the possibility cannot be ruled out," he said, adding that the US and its allies may deploy military escort forces to protect the waterway. If Iran successfully blocks the strait, the consequences for the global oil market could be extremely severe. "This could create a situation three times as severe as the Arab oil embargo of the 1970s and the Iranian Revolution, driving oil prices into the triple digits, while liquefied natural gas prices would once again test the historic highs of 2022," Kavonic pointed out. Market buffers and responses The physical market does indeed have some buffering capacity to mitigate this impact. Major Gulf oil-exporting countries, including Saudi Arabia, significantly increased oil shipments weeks before the attacks occurred; Saudi Arabia has oil storage facilities outside of the Persian Gulf in other global regions and has pipelines to the Red Sea, allowing for some exports to be diverted. Over the past year, global floating oil inventories have surged sharply, indicating a market oversupply, although most of this excess oil comes from black market trades by Russia and Iran. OPEC+ has announced that its major member countries will make a slight increase in production in April; many countries, including the world's two largest oil consumers, the US and China, have strategic oil reserves that can be used when necessary. However, the effective closure of the Strait of Hormuz would be the most severe shock to the global oil market. Sources reveal that refineries across Asia are trying to delay loading dates for cargo in the Persian Gulf, but they haven't reached any agreements yet. Many analysts and traders expect the US to take measures to ensure the resumption of traffic through the Strait of Hormuz. US President Donald Trump has repeatedly called for lower oil prices, and a spike in fuel prices would put greater pressure on the US government, forcing it to end the conflict quickly. "If sea traffic remains chaotic for an extended period, they may be forced to consider measures beyond air operations, such as naval escorts," said Aaron Stein, director of the Foreign Policy Research Institute. Speculative risks and final assessments Since the beginning of the year, numerous oil traders have been heavily betting on the outbreak of conflict. Some have warned that the record accumulation of speculative long positions in the last two years means that any upward trend at the opening may face significant profit-taking. However, they unanimously agree that this conflict is more serious than the 12-day war last year, and the future direction of regional security is far from certain. "Iran's retaliatory actions are more aggressive and widespread than any previous one," said Jorge Leon, director of geopolitical analysis at consultancy firm Rystad Energy. "Unless there are quick signs of de-escalation, we expect significant upward repricing of oil early this week." Andy Lipow, president of Lipow Oil Associates, said that while Iranian oil facilities have not been directly targeted so far, the attacks will significantly increase the risk of oil supply disruptions in the region. Lipow described the worst-case scenario as "an attack on Saudi oil infrastructure, followed by a complete closure of the Strait of Hormuz." Given that Iran may feel cornered, he estimates the probability of this scenario occurring to be around 33%. "Currently, how this crisis will end is extremely uncertain," said Barclays analyst Amarpreet Singh. "But at the same time, the oil market will have to face its most serious concerns." With only a few hours left until the oil market opens, most traders expect Brent crude oil prices to surge significantly from last Friday's close of $72.48 per barrel. Brent crude oil closed at $72.48 per barrel last Friday, up approximately 19% since the beginning of the year. US WTI crude closed at $62.02 per barrel, up about 16% year-to-date.