Thoughts on the Strait of Hormuz crisis
The Strait of Hormuz is becoming the key test of strength between the US and Iran. I've been thinking about what happens if they stay closed for an extended period. My conclusions might surprise you.
Note to newsletter recipients: yes, I know it’s the Strait, not the Straights. No idea how that slipped through! Thanks to all who pointed out my mistake :-)
As you would expect, I have been devouring the news from the Gulf, trying to figure out what happens next and what it means. Last week Bryony and I recorded an episode of Cleaning Up in which we laid out some initial thoughts. Since then Iran has shut the Strait of Hormuz, sending oil prices soaring and hopes of a speedy resolution plunging. What now?
The story so far
There are some things we know about how this might play out, and many we don’t. Much depends on how long the conflict continues, and what happens when Israeli and US bombs stop falling. Will the Iranian people take to the streets again and depose the regime? Or does the regime stay in control and maintain the country’s threat to the region? Much will also depend on the US midterms, and how worried republicans get about a potential wipe-out.
Behind all the noise, however, one thing seems clear, the key test of strength between the US and Iran is shaping up to be whether the Strait of Hormuz is quickly reopened or not. If the Strait reopens and energy prices crash back to pre-conflict levels, President Trump will declare the war a success. If they don’t, inflation will declare it a failure.
While the US can hit any target it wants (generating impressive videos for a Secretary of War who seems to think this is a video game), Iran has surprised the US by disabling much of its radar and advanced warning capability, allowing it to continue attacking ships and facilities in the region with missiles and drones, and to begin mining the crucial waterway.
Just as Israel has been unable to dislodge Hamas from Gaza despite over two years of violent attacks, there must be a reasonably high chance that the US is unable to dislodge the Iranian regime and the Revolutionary Guards. The result could be a conflict that rumbles on, with the Strait, if not fully closed, not fully open either.
I have no special insight into the likelihood of this happening. Nor into oil and gas prices in the near term (though neither do oil and gas market analysts: on 11 July 2008, someone bought oil for $147 per barrel - $224 in today’s money - and for about 15 minutes presumably thought they had done a good deal). However, I have been thinking about the longer-term implications for the energy markets.
As you would expect, I’ve started with some numbers.
What actually gets transported through the Strait of Hormuz
Until the beginning of the don’t-call-it-a-war at the end of February, around 20 million barrels of crude oil and oil products were passing through the Strait of Hormuz each day - around 20% of total global demand. The Strait of Hormuz also accounted for around 20% of the 410 million tonnes of LNG shipped around the world globally, and around 20% of seaborne traffic in urea, ammonia, sulphur and other fertilizer-related commodities.
So: 20% of oil, 20% of LNG, 20% of seaborne trade in fertilizer. The impact of closing the Strait should be the same across all those markets, right? Wrong.
”Halting LNG flows through the Strait of Hormuz would be just as bad
for gas and LNG markets as for oil, analysts have warned”
Lloyds List, 2 March 2026.
Wrong
In the case of oil, closing the Strait of Hormuz wipes out 20% of global supply. However, in the case of gas, closing the Strait only wipes out 20% of global seaborne supply. That is just 3% of global supply.
So the first observation is that there is a huge difference between losing 20% of oil supply and 3% of gas supply.
But that’s not the only difference. What happens if the conflict drags on, not just for a few more weeks, but in some form for many months or longer. How quickly can the world turn to alternatives?
Substituting oil with EVs
For all that EVs now account for over one new car in four, the vehicle fleet turns over slowly, so there are still only 58 million electric cars and light trucks on the road out of a total fleet of around 1.5 billion, just under 4%. And because heavier vehicles have only just started going electric, EVs have so far suppressed less than 3% of oil demand growth.
In fact, even if EVs were suddenly to jump from 25% of global vehicle sales to 100%, the average vehicle is on the road for nearly 20 years. So it would take five years to destroy 20% of land transport related oil demand. But that makes up only 46% of oil use.
What this means is that if your plan to relieve pressure on oil transport through the Strait of Hormuz is based on EVs, it will take a decade to bear fruit. A prolonged closure of the Straits would without doubt act as a massive accelerant of the switch to EVs, but that cannot lead to a quick balancing oil supply and demand.
We will almost certainly see Saudi Arabia, UAE and others increasing pipeline capacity to bypass the Strait - something long overdue from an energy security perspective - well before EVs destroy 20% of oil demand.
Substituting gas with wind and solar
The situation is very different for natural gas. Set aside the increase in LNG capacity already baked in from countries like Australia and the US, which before the war was looking like causing an LNG glut over the coming years. Natural gas demand can be substituted relatively quickly by - followers of my work may already have guessed the answer - wind and solar.
In 2025, natural gas generated 6,500 TWh of electricity, meeting 21.2% of global demand, a handy 20% more than wind and solar’s combined 5,390 TWh.
However, power from natural gas had grown since 2024 by just 20 TWh, or 0.3%, while power from wind and solar had grown 830 TWh, or 18%. The fact is, before the US and Israel took it into their heads to unleash the Rapture on Iran, wind and solar were on track to have overtake natural gas in global electricity production by the end of this year. And that trend could now be accelerating.
The 110 billion cubic metres of LNG that passed through the Strait of Hormuz in 2025 was enough to produce around 600 TWh of electricity. Now wrap your head around this: in the absence of power demand growth, growth in wind and solar power would compensate for the loss of LNG passing through the Strait of Hormuz in just 9 months.
Before you take to the comments (or social media) to point out that only around a third of LNG is used in power generation, that’s irrelevant. If you can eliminate demand in one sector, the wonders of the market will reapply the freed-up gas to other sectors. You do not need to run around substituting a bit of this demand and a bit of that demand, gas is fungible.
That doesn’t mean we would see a quick and painless replacement of the lost gas. We can’t just assume away growth in power demand (practically all of which is now being met by wind and solar, as Ember has pointed out). There is still the matter of fertilizer, which would need replacing, and the need to expand transmission. The GCC region would witness enormous disruption from loss of revenues and disrupted supply chains. Also, we need to acknowledge the devastating human effects that would ensure from a prolonged conflict, and the impact on development in the GCC region.
However, the core point stands: if there is a prolonged disruption in shipping via the Strait of Hormuz, the oil market would suffer loss of supply and high prices for many years, while gas - and hence power markets - could recover much more quickly.
Consequences for the transition
This scenario would have the most extraordinary consequences for the transition. Countries respond to the crisis with an initial dramatic increase in the rate of building of renewable energy. Then, within a few years, gas and power prices drop. Oil prices, however, stay persistently high - and consumers respond by accelerating the switch to EVs.
Whether this scenario plays out depends not just on the trajectory of conflict in the Gulf region. If central banks have to raise interest rates to deal with the inevitable spike in inflation, that might kill the chances of massive investment in new energy infrastructure. And of course there is still the backdrop of the confrontation between the US and China, the tariff war, and Russia’s war on Ukraine.
So I would not call it a forecast, but it is certainly a scenario, and for me at least has been a useful thought exercise.
Of course we all wish for a speedy resolution, and one that has the wishes and welfare of the Iranian people at its heart. Nevertheless, in these dark times, it is worth hanging on to the thought that even the most undesirable outcome in the Gulf could pave the way to better times. It is important to remain optimistic.
Selah.
Updated 12 March 2026, correcting spelling of Strait of Hormuz, and adding a few bits and pieces.
Always interesting to get your take on events and their impacts. Hoping there is a silver lining in that it will help accelerate transition thinking into action. a literal burning platform for change.
Insightful as always Micheal. This is a strong distinction: Hormuz is an existential chokepoint for oil, but for gas it is mainly a chokepoint for LNG trade, not for the entire global gas system. The only caveat I’d add is that even a relatively small loss in global gas terms can still create an outsized shock in marginal LNG pricing, because the market clears at the cargo margin, not on annual averages. So I’d frame the asymmetry as: oil suffers more as a physical supply shock, gas more as a pricing and reallocation shock.