The Strait of Hormuz Squeeze: Why a $150+ Oil Price Could Be Just the Beginning

MarketDash

Mar 11, 10:13 AM

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A historic supply shock in the Gulf is sending oil prices soaring and airline stocks tumbling. Here's why consultants warn the real pain might still be ahead.

Key Points

A supply shock from the U.S.-Israel conflict with Iran has disrupted up to 15 million barrels per day of oil and refined products, with the Strait of Hormuz—a chokepoint for 20% of global oil trade—at the center of the crisis.
Consultancy Wood Mackenzie warns that restarting production after wells are shut in could take weeks or longer, and that Brent crude may need to hit $150 per barrel to destroy enough demand to rebalance the market.
European airlines are taking a direct hit, with Wizz Air Holdings PLC (WZZAF) down nearly 20% and Lufthansa down around 12%, as Gulf refineries supplied about 60% of Europe's jet fuel.
Refining margins have exploded, with jet-fuel crack spreads implying an equivalent oil price near $200 per barrel, creating a cascading shock through global energy markets.
Despite recent signs of stabilization, including a drop in attacks and political signals, oil markets remain nervous with prices around $85, far below the levels analysts say may be needed.

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So, you thought the oil market had seen it all? Think again. After a historic supply shock triggered by escalating tensions in the Gulf, the oil world is bracing for what could be a prolonged and painful period of uncertainty. According to a fresh analysis from the consultancy Wood Mackenzie, getting back to normal isn't going to be a simple flip of a switch.

The drama peaked late Sunday when Brent crude briefly spiked to $119.5 a barrel. That's one of the most dramatic jumps in recent memory, and it all boils down to one narrow strip of water: the Strait of Hormuz. This shipping corridor between Iran and Oman isn't just any waterway—it handles roughly one-fifth of all the oil traded globally. The main fear, quite understandably, is a full-blown disruption of exports through this vital chokepoint.

A Supply Chain in Deep Freeze

Wood Mackenzie's team has crunched the numbers, and the scale is staggering. They estimate that as much as 15 million barrels per day of crude and refined products were effectively yanked off the global market. For a region that produces about 20 million barrels a day, that's a potential loss of the majority of its exports all at once. The consultancy didn't mince words, calling the scale of disruption "unprecedented."

Here's the kicker, though. Even when the conflict ends, the oil won't just start flowing again like nothing happened. "When the conflict ends, cranking up the supply chain won't be swift," wrote the Wood Mackenzie analysts. They explain that while product barrels sitting in storage might get moved quickly, if wells have been shut in for a while, restarting them to full output "could take weeks or even longer." It's a bit like trying to restart a complex, frozen machine—it takes time, and things can go wrong.

The Airline Toll: A Direct Hit on Jet Fuel

If you want to see where this pain translates directly into stock prices, look no further than the airline sector. Europe is particularly exposed because it relies heavily on Gulf supply chains. In 2025, Gulf refineries supplied a whopping 60% of Europe's jet fuel and 30% of its diesel. Those flows are now in chaos.

The market reaction was swift and brutal. Since the conflict began, shares of Wizz Air Holdings PLC (WZZAF) have plummeted nearly 20%. The German aviation giant Lufthansa has lost around 12%. Even companies further up the supply chain, like aero-engine producer Rolls-Royce Holdings plc (RYCEY), have slid 5.5%. In a concrete operational move, British Airways has suspended all flights to Abu Dhabi for the rest of the year.

The disruption doesn't stop at Europe's borders. It's cascading globally. With Europe scrambling for alternatives, demand has shifted to other suppliers like India. But here's the twist: Indian refiners themselves get about 40% of their crude feedstock from the Gulf. So the shock isn't a single event; it's reverberating through multiple layers of the global energy system, like a stone creating ever-widening ripples in a pond.

The Math of Margins and $200 Oil

This chaos has a very clear financial signature: exploding refining margins. In Northwest Europe, the crack spread for jet fuel—basically the profit margin for turning crude into jet fuel—has surged to about $100 per barrel. To put that in perspective, those levels imply an underlying oil price getting uncomfortably close to $200 per barrel in equivalent terms. Diesel margins have jumped to around $70 per barrel, several times higher than before the conflict.

With limited alternatives available, analysts see only one real way for the market to find a new balance: demand must fall. A lot. "Global oil demand of 105 million barrels a day will still have to fall to balance the market, and in our view that will require Brent to push up at least to $150 per barrel in the coming weeks," the analysts noted.

You might remember oil hitting sky-high levels during the 2022 Russia-Ukraine crisis. Wood Mackenzie argues the current situation is potentially more severe. "Supply volumes at risk this time are dimensionally bigger – and real. In our view, $200 per barrel is not outside the realms of possibility." That's not a prediction they make lightly.

A Nervous Calm, For Now

Markets, ever fickle, have shown some tentative signs of stabilization recently. On Monday, there were political signals that the conflict could be nearing an end. Meanwhile, attacks on shipping in the region have dropped sharply, suggesting the immediate threat has eased.

Even with that, the oil market is still jittery. As of Wednesday morning, crude was trading around $85 a barrel. That's a far cry from the $150-plus levels analysts are talking about as a potential necessity. It's a reminder that the market is pricing in a lot of hope for a quick resolution, while the fundamental supply picture remains deeply troubled.

For those tracking the moves, the United States Oil Fund LP (USO), a popular way to follow oil prices, is up over 53% year-to-date. That tells you all you need to know about the direction of travel, even if the final destination is still wildly uncertain.