Oil could hit $200 a barrel if Strait remains shut – Daily Business

Ships are struggling to get through the strait

A prolonged closure of the Strait of Hormuz could see oil prices hit $200 a barrel and see the global economy shrink by 0.4%, according to a new report from leading energy analyst Wood Mackenzie.

Such an outcome would mark the third global recession this century, with “significant economic scarring”, it says.

The WoodMac report, Strait Talking: Iran War Scenarios and the Future of Energy, notes that more than 11 million barrels per day of Gulf crude and condensate production is currently curtailed.

More than 80 million tonnes per annum of LNG supply, equivalent to around 20% of global supply, remains inaccessible to global markets.

“The Strait of Hormuz is the most critical chokepoint in global energy markets, and a prolonged closure would become far more than an energy crisis,” says Peter Martin, head of economics at WoodMac.

“The longer disruption persists, the greater the impact on energy prices, industrial activity, trade flows and global economic growth.”

WoodMac’s report outlines three scenarios – Quick Peace, Summer Settlement and Extended Disruption.

Quick Peace

Under the most optimistic ‘Quick Peace’ scenario the Strait reopens by June. The global economy broadly returns to its pre-war trajectory by Q4 2026.

Crude prices fall sharply following a deal, with Dated Brent easing to around $80/bbl by end-2026 and declining further to $65/bbl in 2027 as the oil market returns to oversupply. 

Global GDP growth slows from 3% in 2025 to 2.3% in 2026, with a recession limited to the Middle East. The global economy broadly returns to its pre-conflict trajectory by Q4 2026.

Summer Settlement

The ‘Summer Settlement’ scenario assumes the Strait remaining largely closed until September.

Oil and LNG supply shortages persist through Q3 2026, driving a shallow global recession in H2 2026. Global GDP growth falls below 2% in 2026, resulting in modest yet permanent economic scarring compared to the pre-war baseline.

Extended Disruption

Under the most severe scenario, the Strait remains largely closed through the end of 2026, with recurring tensions triggering periods of renewed conflict and sustained supply disruption. Wood Mackenzie’s analysis indicates:

Brent crude prices could approach $200/bbl by end-2026, despite global oil demand falling by 6 million b/d year-on-year in H2 2026

More than 11 million b/d of crude and condensate production remains shut in and global oil inventories continue to decline. Diesel and jet fuel prices could rise towards $300/bbl in major refining centres by year end

The global economy could contract by as much as 0.4% in 2026, marking the third global recession this century, with significant economic scarring

Oil and gas importing countries could intensify efforts to reduce their import dependence by aggressively pursuing faster electrification

The regional economic impact would be severe and uneven. The Middle East could see GDP contract by 10.7% in 2026, while EU GDP declines by 1.5% in 2026 and 0.5% in 2027. US GDP growth would fall below 1% in both years, while China’s GDP growth slows to 3% in 2026.

LNG market faces prolonged disruption and structural change

The report finds the global LNG market faces varying degrees of disruption under each of the three scenarios.

Even under Quick Peace, LNG markets remain tight through summer 2027 as Gulf export facilities recover gradually and construction delays slow the next wave of supply growth from the region.

Chancellor curbs fuel prices

Separately, the UK Government  has announced that a freeze on a fuel duty increase will be extended for the rest of the year. 

The Treasury says this ensures fuel duty on petrol and diesel remains at its lowest rate for over 16 years. 

The Chancellor is giving hauliers a 12-month road tax holiday – meaning they will pay £1 at renewal, saving £600 for a typical heavy lorry and £912 for the biggest vehicles on the road. 

Farmers, rail freight, and other red diesel users will also see their fuel duty cut by over a third until the end of the year. This is the lowest rate in over 20 years, helping to keep the cost of doing business down at a difficult time when red diesel prices are around 50% more than their pre-crisis levels. 

Chancellor Rachel Reeves said: “The war in Iran is pushing up fuel prices here at home but after strong growth at the beginning of the year, I am stepping in to protect people at the pump.”

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