Oil disruption in the Middle East: HSBC outlines 4 scenarios of Hormuz closure on global markets

The disruption of oil flows through the Strait of Hormuz, which has been closed since February 28, has significantly impacted the global oil market. As of now, approximately 19-20 million barrels per day (mbpd), or 20% of global oil supply, has been halted — marking the biggest disruption in recent history. The ripple effects are being felt across markets, with Brent crude prices surging by 13% amid concerns about how long this disruption could last. 

Key Highlights: 

• Brent in low $80s per barrel: Current Brent pricing in the low $80s/b range likely reflects the market's assumption of a short-term closure. However, each passing day without resolution raises the possibility of a prolonged disruption. 
• Oil prices could rise to $90-100 per barrel: In the event of extended closure, Brent prices could escalate to $90-100 per barrel if stockpiles are heavily depleted and production becomes shut in or damaged. This would have far-reaching consequences for global oil prices and markets. 

The research outlines four potential scenarios for the future of this oil crisis: 

Scenario 1: One-week disruption, de-escalation within days 

This scenario assumes that diplomatic efforts or military force will quickly reopen the Strait of Hormuz. Brent prices would fluctuate within a $78-85/b range during the disruption, but prices would return to $70-75/b once reopening occurs. This scenario also assumes that refining margins would adjust, and physical tightening would remain for 2-4 weeks due to logistical disruptions, including shipping delays and insurance costs. 

Scenario 2: One-month closure, aligning with the US '4-5 week' timeline 

In this case, Brent would continue to rise to USD85-95/b as the market braces for a longer disruption. A 15 million barrel per day supply shortfall would imply that inventory draws are likely, especially in the Gulf, as countries begin stockpiling reserves in preparation for the worst. Major producers like Iraq and Qatar may reduce output to conserve stockpiles. At this point, floating strategic reserves from Iran, Russia, or other countries could help mitigate the gap in supply. 

Scenario 3: Prolonged (partial) closure, oil prices soar 

This scenario envisions a severe, long-lasting disruption in the region, analogous to the Red Sea situation of late 2023. It would likely drive oil prices to $100-120 per barrel. The magnitude of the supply shortage could lead to higher oil prices for months. Strategic releases from the US and OPEC would fail to have a significant impact due to the finite nature of non-OPEC response capability and slow recovery from transit disruptions. 

Scenario 4: Damage to regional oil infrastructure 

Unlike scenarios 1-3, this scenario assumes that key oil infrastructure in the region is damaged by attacks, potentially on a massive scale. For example, the Abqaiq facility was severely impacted in 2019 and took several weeks to recover. A major strike on infrastructure or upstream facilities, especially those reliant on multi-month repair timelines, could lead to Brent prices surging to $90-100 per barrel or more, depending on the severity of the damage and the time required for repairs.