Hormuz closure seen as temporary as oil glut caps price spike risk

The effective closure of the Strait of Hormuz is likely to be short-lived, and a well-supplied global oil market should prevent a sustained price surge even as the Iran conflict rattles energy markets, Fitch Ratings said.

The agency said it does not expect a significant upside to its December 2025 forecast of an average Brent crude price of $63 a barrel for 2026, citing both the economic imperative to reopen the waterway and a global oil market that was already in oversupply before hostilities began.

A vital artery under pressure

The strait has not been formally closed, but vessels are increasingly avoiding it due to the risk of attack by Iran or its proxies. Oil majors have halted shipments for safety reasons, and insurers are cancelling war risk cover for tankers transiting the waterway.

Before the conflict, around 20 million barrels per day of crude oil and petroleum products moved through the strait — roughly a quarter of global seaborne oil trade and a fifth of total global oil consumption. About half of those volumes are exports from Saudi Arabia and the UAE, with the remainder coming from Iraq, Kuwait and Iran. Approximately half of all strait exports are destined for China and India.

Fitch said a prolonged closure would damage both exporters and importers alike, making it an unlikely baseline outcome. The agency noted that if the strait were to remain effectively shut for an extended period, naval protection for tanker navigation could be considered, as happened during the Iran-Iraq war of the 1980s.

Oversupply provides a buffer

The global oil market's structural oversupply is a significant brake on any price spike. Global supply growth outpaced demand in 2025, with supply rising by about 3 million barrels per day against demand growth of well below 1 million barrels per day.

Fitch forecast supply growth of 2.4 million bpd in 2026, against demand growth of about 0.8 million bpd, with half of the 2025-2026 supply increases coming from non-OPEC+ producers unaffected by the conflict. OPEC+ holds spare production capacity of 4.3 million bpd.

Global observed oil inventories rose by 1.3 million bpd in 2025 to their highest level since March 2021, reaching 8.2 billion barrels at year-end — enough to cover a complete halt in Hormuz shipments for more than 400 days.

Iran produces around 3.5 million bpd and exports about 2 million bpd, but accounts for only approximately 3.5% of global crude output. Fitch said potential supply disruption from Iranian fields would therefore be absorbed by existing market oversupply.

Bypass routes offer partial relief

Saudi Arabia and the UAE have infrastructure that can partially circumvent the strait. Saudi Aramco operates a 5 million bpd east-west crude pipeline to a Red Sea export terminal, while the UAE runs a 1.5 million bpd capacity pipeline — with a maximum achieved flow of 1.8 million bpd — linking its oil fields to the Fujairah export terminal on the Gulf of Oman.

Fitch cautioned, however, that the conflict's duration and intensity remain uncertain. Any protracted blockage of the strait, or sustained damage to the region's oil and gas production and transport infrastructure, "would materially affect oil markets and likely result in a more material rise in our base case 2026 oil price assumption".

The agency added that oil price volatility would increase if Iranian production were significantly disrupted.