Iran, Hormuz, and the oil market: everything traders need to know

1. Timeline: How the market repriced in real time

When the US-Israeli strikes began on February 28, the oil market initially treated this as a logistics disruption. Freight rates spiked immediately, but crude barely moved.

Traders, burned by the 12-day Venezuela war that resolved quickly, were reluctant to price a sustained supply event. In the first 24 hours, the Strait of Hormuz shut effectively, not because Iran imposed a blockade, but because insurers pulled war risk coverage and ship owners pulled crews from an active conflict zone.

By day two, the picture changed fundamentally. Iran struck energy infrastructure across six Gulf states simultaneously, an unprecedented breadth of targeting.

Saudi Arabia’s Ras Tanura refinery (550,000 b/d) was shut after a drone strike. Qatar halted all LNG production at Ras Laffan after drone attacks. Bahrain’s 405,000 b/d Sitra refinery was hit by a missile. Fujairah, Duqm, and Mussafah were all struck.

The market had to reprice from “logistics” to “supply destruction and infrastructure war.”

By the end of the first week, WTI had surged ~35%, the biggest weekly gain in futures history dating back to 1983. Brent rallied ~28% to settle at ~$93/bbl, its biggest weekly gain since April 2020.

This weekend, the escalation continued: Israel struck fuel depots in Tehran for the first time (four storage facilities and a transfer centre), and Iran launched over 20 drones at Saudi Arabia’s 1 mn b/d Shaybah super-giant field. The IRGC retaliated against the Tehran strikes by claiming a missile hit on Haifa’s refinery. Energy infrastructure is now firmly a target for both sides.

2. Gulf infrastructure damage and production shut-ins

The following table summarises confirmed disruptions to Gulf energy infrastructure through March 8:

Iraq — Rumaila, West Qurna 2, Maysan fields: 2.5 mn b/d cut and rising. Storage at southern ports is full. Southern output may drop from 4 mn to 1 mn b/d. Could reach 3+ mn b/d total cuts. Kurdistan region has also seen foreign companies halt operations.

Kuwait — All fields and refineries: 2.6 mn b/d crude + 860k b/d product exports. Force majeure declared March 7. Cuts underway. No pipeline bypass available.

Saudi Arabia — Ras Tanura refinery (550k b/d): shut since March 2. Shaybah field (1 mn b/d): 21 drones intercepted Saturday, remains operational. Juaymah LPG terminal disrupted. Saudi is routing an estimated 2.0–2.5 mn b/d through Yanbu on the Red Sea, but this is a fraction of normal flows.

UAE / ADNOC — 3.5 mn b/d total output: managing offshore production down. Using ADCOP/Habshan-Fujairah pipeline (up to 1.8 mn b/d capacity). Fujairah port partially operational again after fires. Mussafah fuel terminal hit March 2.

Qatar — Ras Laffan and Mesaieed (~20% of global LNG, ~81 mn tonnes/yr): production halted March 2 after drone strikes. Force majeure declared March 4. Also stopped downstream products (urea, polymers, methanol, aluminium).

Bahrain — Sitra/BAPCO refinery (405k b/d): missile strike March 5, fire contained, claims operational.

Oman — Duqm port: drone strikes on fuel tanks and a tanker.

Iran — Four fuel storage facilities in Tehran and Alborz province: struck by Israel Saturday night. Major fires. Fuel distribution temporarily interrupted in the capital.

Aggregate pre-conflict Hormuz flows disrupted: ~20–21 mn b/d of total oil (crude, condensate, and products), representing roughly one-fifth of global petroleum consumption, plus ~20% of global LNG.

JPMorgan forecasts total GCC shut-ins could reach ~6 mn b/d by end of next week if Hormuz remains closed. Goldman Sachs has warned crude could exceed $100 this week absent a resolution, with $120+ scenarios if the war extends beyond three weeks.

3. The cascade into Asia: country-by-country impact

Asia receives approximately 84% of all crude transiting Hormuz. Asian steam crackers source over 60% of their naphtha feedstock from the Middle East. The disruption has spread across the region with extraordinary speed.

China: Zhejiang Petrochemical (Aramco-backed) shut a 200,000 b/d unit, bringing forward maintenance. FREP (Fujian Refining, Aramco-backed) shut its 80,000 b/d unit. Shell-CNOOC south China JV closing a 1.2 mn tonne/yr steam cracker. Most significantly, the government ordered all major state refiners (Sinopec, PetroChina, others) to suspend diesel, gasoline, and kerosene exports, removing an estimated 400,000–600,000 b/d of refined products from the Asian market. No new export contracts to be signed. Independent “teapot” refiners have near-term supply from pre-conflict Russian and Iranian crude purchases, but this buffer is finite.

India: Mangalore Refinery (MRPL) shut a crude unit and secondary units at its 300,000 b/d refinery. Force majeure declared on all gasoline exports. The government invoked emergency powers and ordered refiners to boost LPG output. India is also rushing to secure Russian crude, the US has granted a sanctions waiver.

South Korea: Yeo-chun NCC cut output and declared force majeure, unable to receive naphtha due to Hormuz blockade. The government is reportedly considering reinstating an oil price cap for the first time in 30 years.

Singapore: PCS declared force majeure on petrochemical shipments. Aster Chemicals and Energy declared force majeure on ethylene and propylene supply.

Indonesia: Chandra Asri declared force majeure on all contracts due to raw material supply disruption.

Vietnam: Binh Son Refining asked the government to halt crude exports and prioritise domestic supply to its Dung Quat refinery through at least Q3 2026.

Japan: Refiners formally asked the government to release strategic petroleum reserves. Japanese refiners source approximately 95% of crude from Saudi Arabia, Kuwait, UAE, and Qatar, with ~70% delivered through Hormuz.

Pakistan: Raised retail gasoline and diesel prices ~20% (Rs 55/litre), citing Gulf supply disruptions.

Other countries: Bangladesh, Myanmar, and the Philippines are already enacting conservation measures.

5. The normalization sequencing problem

Even if the Strait of Hormuz reopens tomorrow, supply chain normalization follows a rigid, sequential timeline that cannot be compressed.

Days 1–7 (Port scramble): Ships begin loading. But each VLCC requires 2–3 loadports to fill its 2 mn barrel capacity, creating scheduling bottlenecks at every terminal. Onshore tanks are full, so initial loadings proceed, but prioritisation is a scramble.

Days 7–14 (Production restart): After tanks drain, shut-in fields must restart. This is not instantaneous, well pressure must be managed, associated gas systems restarted, pipeline integrity verified.

Days 14–30 (Refinery restart): Refineries cannot operate on a start-stop basis. One VLCC arriving is insufficient to sustain a viable run. Operators need visibility of a consistent arrival programme before committing to restart. Those that fully shut down face multi-week commissioning timelines.

Days 30–45 (Downstream petrochemicals): Steam crackers restart only after refineries achieve steady state and consistent naphtha cargoes arrive. Asia is a net naphtha importer, the petrochemical sector cannot run up until seaborne flows normalise.

Days 40+ (Alternative crude resupply): Atlantic basin crude (WTI, WAF, Brazilian, Guyanese) takes approximately 40 days to reach Asian refineries. Even then, these lighter grades don’t match the yield profile of AG medium-sour crude, meaning some refineries remain unable to produce the product slate their markets need.

Estimated minimum timeline: 2 months from Hormuz reopening to normalized refining supply chain. 2.5 months for petrochemicals.

This timeline assumes a clean reopening. If infrastructure damage in the Gulf requires repair, if fields that shut in face reservoir complications on restart, or if the conflict leaves lingering insurance and security concerns that keep some vessels away, the timeline extends further.

6. What to watch this week

Crude prices: Goldman Sachs says $100+ this week without resolution. The market on Monday will price in the weekend’s escalation, strikes on Tehran oil facilities, Shaybah drone attack, Kuwait force majeure, and continued absence of any diplomatic off-ramp.

SPR releases: The US can draw 4+ mn b/d from its strategic reserve. A coordinated IEA release is expected, potentially triggered at the $100 mark. Even a full draw doesn’t close the Hormuz gap, and prices would still reflect emergency conditions.

Further Gulf shut-ins: JPMorgan expects UAE constraints to emerge this week. Saudi Arabia has more storage runway, but Aramco hits capacity within weeks. Watch for additional force majeure declarations.

Asian refinery actions: More run cuts are likely. Watch for Japan formally accessing its SPR, additional Chinese production adjustments, and whether Korean or Japanese Refiners take additional action.

Product cracks: We might see cracks coming off following the rise of Crude late on Friday. The necessary flat price move is now being done by crude and cracks don’t need to be as supportive. But if diesel and jet cracks continue widening, it signals the market believes the disruption is deepening, not resolving.

Oil nationalism: China’s export ban may spread. Any additional countries curbing fuel exports tightens the product market further.