By Ben Cahill

About the author: Ben Cahill is a nonresident senior associate in the Energy Security and Climate Change Program at the Center for Strategic and International Studies. He is a regular contributor to Barron's.

Policymakers in Washington evaluating the Iranian conflict and its effects on the global energy market face an inescapable conclusion: The Strait of Hormuz has to be reopened. Otherwise, the toll on energy prices will mount as transit halts and more production is shut in.

For years, policymakers and investors tuned out geopolitical risks in the Middle East. Until this week, they were vindicated, as oil and gas supplies were unaffected by regional conflicts. But with tanker traffic in the Strait of Hormuz near a standstill, there are no easy options to keep the oil and gas flowing.

President Donald Trump said Tuesday the U.S. would insure tankers and ships crossing the strait, but vessel owners remain wary of attacks.

More than 200 tankers are idling on both sides of the strait, leaving Iraq, Kuwait, and Qatar unable to transport crude oil and petroleum products. Iraq has reduced oil production by nearly 1.5 million barrels a day. With Iraqi inventories near capacity, deeper production cuts could follow.

The White House has proposed some ideas to revitalize oil and gas transit. Trump said Tuesday that the U.S. Development Finance Corporation, a government agency that typically mobilizes capital for investment in developing countries, will provide discounted political risk insurance and guarantees for maritime transit. Trump also suggested the possibility of naval escorts for tankers through the strait. Few details have been made available, however, and the effectiveness of such unprecedented measures remain to be seen.

The U.S. has other contingency options. The first is the potential for inventory drawdowns, either by individual countries or via a coordinated stock release. The U.S. Strategic Petroleum Reserve holds more than 400 million barrels of crude. The Trump administration said Wednesday that no SPR releases are imminent.

But it is surely on the table in the event of a price run-up toward $100 per barrel. That will become more likely if the conflict extends beyond the next week or so. (The International Energy Agency, which held an emergency meeting Tuesday, is likely preparing for a potential coordinated release of strategic stockpiles.)

Saudi Arabia and the United Arab Emirates also have a buffer, thanks to their geography and years of careful planning and investment. The East-West pipeline, with a nominal but relatively untested capacity of up to 7 million b/d, connects Saudi Arabia's Abqaiq oil processing complex with its port city of Yanbu on the Red Sea, allowing crude to bypass the Gulf. The Abu Dhabi Crude Oil Pipeline supplies the U.A.E.'s large loading port of Fujairah with a capacity of 1.8 million b/d. However, total loading capacity at Yanbu is uncertain, and Iran has staged drone attacks on storage tanks in Fujairah.

Some large importers could make their own moves. Concerned over the growing use of energy sanctions and the rise of geopolitical uncertainty, China has increased its inventory builds over the past year. It now has 1.1-1.3 billion barrels in reserves, although it is hard to predict how it might leverage this stockpile. India lacks such large inventories, but as prices climb, it may opt to buy the copious volumes of sanctioned crude oil currently in floating storage, mainly in East Asia.

The situation for global gas supply is perhaps more worrying. Qatar Energy halted operations at Ras Laffan on Monday, bringing the world's most critical LNG export facility to a standstill. It likely can't resume full operations for several weeks.

Qatar supplied 18% of global LNG and shipped more than 80% of its cargoes to Asia last year. A prolonged disruption of supply would lead to a scramble for spot cargoes. That is bad news for Europe. Gas storage in the European Union is at 30% of capacity after winter drawdowns. With the key buying season to refill storage just around the corner, outbidding Asian countries in a tight market would be an expensive proposition.

Despite the widening of this regional war, the crude price impact has been modest. But if the strait remains effectively closed for much longer, that could change. Already, stress is beginning to show in refined products, with jet fuel prices soaring. Higher oil and gas prices may eventually force the U.S. to make difficult choices -- including whether to end the offensive prematurely, perhaps with a cease-fire that leaves the Islamic Republic in place and fails to destroy its nuclear program.

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March 05, 2026 10:31 ET (15:31 GMT)

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