Oil Could Rise Further if Hormuz Closure Extends

Strait of Hormuz Closure Keeps Crude Prices Elevated

Oil markets have entered a new phase of volatility as tensions in the Strait of Hormuz continue to escalate. What initially appeared to be a short-lived disruption is transforming into a prolonged conflict.

Crude oil prices surged close to their highest levels of 2026 at the start of the week, with Brent crude briefly climbing above $115 per barrel. The sharp rise was driven by renewed attacks in the Gulf and mounting uncertainty around supply flows. West Texas Intermediate followed a similar trajectory, pushing above $107 before retreating slightly.

However, the pullback that followed does not signal easing risks. Instead, it reflects a market struggling to price two opposing forces: the potential reopening of the strait versus the growing likelihood of sustained disruption.

Global Oil Supply Hit by Strait of Hormuz Blockage

The Strait of Hormuz remains the single most critical chokepoint in global energy markets, accounting for roughly a fifth of global oil and gas flows. Since the start of the war between the United States, Israel and Iran, the waterway has been effectively constrained. Despite some producers, such as Saudi Arabia and the United Arab Emirates finding alternative routes for their exports, around 10-12 million barrels of crude remain disrupted.

Despite the latest efforts by Donald Trump to restore shipping through the initiative known as “Project Freedom” early signs suggest limited success. Shipping traffic remains significantly below normal levels, while fresh Iranian attacks on vessels and regional infrastructure highlight the fragility of any near-term resolution. ¹

This highlights that disruptions in Hormuz have huge impact on global oil supply.

Oil Markets Pricing a Prolonged Shortage

Oil markets started pricing not just immediate supply losses, but the risk of a longer-lasting shortages. Futures curves have steepened, and longer-dated contracts are rising sharply. This signals expectations that tightness could persist for much longer.

Physical oil markets where actual barrels trade are priced much higher than futures. This divergence indicates that the true extent of the supply shock may not yet be fully reflected in headline prices. ²

At the same time, global inventories are being drawn down unevenly, raising the risk of localized shortages, particularly in refined products such as jet fuel and petrochemical feedstocks.

Source: TradingView. WTI oil daily price chart as of 05 May 2026.

Geopolitics Dominate Oil Price Direction

Renewed violence in the Strait of Hormuz casts fresh doubt over the fragile ceasefire between the United States and Iran.

Crude oil surged almost 7% on Monday following reports that US forces destroyed several Iranian boats in response to attacks on commercial vessels, while the United Arab Emirates confirmed strikes from Iranian drones and missiles on critical infrastructure. Iranian officials have denied the US claims, highlighting the growing uncertainty and conflicting signals surrounding the escalation.

Markets are now pricing in a higher risk of prolonged disruption, including potential damage to key energy infrastructure and the possibility that the strait could remain restricted for longer than initially expected.

Despite Donald Trump announcing “Project Freedom” to escort commercial ships through the waterway, confidence in safe transit remains low. Shipping companies have so far been reluctant to return, citing ongoing security risks.

While US officials reported that a small number of vessels successfully crossed the strait following the announcement, there is still no clear evidence of a meaningful recovery in shipping flows, raising concerns that global oil supply could remain under pressure in the near term.

Even if diplomatic progress is achieved, the damage to infrastructure, shipping confidence, and supply chains will take time to unwind. This suggests that elevated prices could persist even in a de-escalation scenario.

However, should the disruption extend over several months WTI oil could break above its $120 resistance and move toward $130 a barrel.

Downside Risks Still Exist

That said, the outlook is not one-directional. Rising oil prices are already feeding into inflation and consumer costs. This raises the possibility that demand could weaken if prices remain elevated for an extended period.

There is also the potential for policy responses, including increased production from major exporters or the release of strategic reserves, which could help offset part of the supply shock and limit further upside.

Volatility Is Here to Stay

The outlook for crude oil remains highly uncertain, but one trend is clear: volatility is here to stay. In the near term, prices are likely to remain elevated and sensitive to headlines around military developments, shipping activity, and diplomatic progress.

The most important question is whether this crisis represents a temporary disruption or the beginning of a more fragmented and fragile global energy system, and how quickly confidence in safe transit can be restored.

Key Takeaways:

• Hormuz disruption keeps global oil supply under pressure
• Markets price prolonged shortages and higher volatility
• Geopolitics now driving crude more than fundamentals

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Footnotes:

1. Reuters: Oil prices jump 6% as Iran sets UAE oil port ablaze, strikes vessels in Strait of Hormuz, 04 May 2026.
2. Wall Street Journal: $133 vs. $99. What Is the Real Price for a Barrel of Oil?, 14 April 2026.