A prolonged closure of the Strait of Hormuz represents the single greatest threat to global energy markets in decades, energy research firm Wood Mackenzie has warned in a new report outlining three scenarios for how the Iran conflict could unfold and reshape the world’s energy system.
The report, Strait Talking: Iran War Scenarios and the Future of Energy, reveals that more than 11 million barrels per day (b/d) of Gulf crude and condensate production is currently curtailed, while over 80 million tonnes per annum (Mtpa) of LNG supply (roughly 20 per cent of global output) remains locked out of international 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,” said Peter Martin, Head of Economics at Wood Mackenzie.
“The longer disruption persists, the greater the impact on energy prices, industrial activity, trade flows and global economic growth.”
Wood Mackenzie has mapped three distinct paths forward: Quick Peace, Summer Settlement, and Extended Disruption — each carrying sharply different consequences for oil prices, economic growth, and the longer-term structure of global energy.
Under the most optimistic Quick Peace scenario, a workable agreement is reached in the near term and the Strait reopens by June. Dated Brent crude would ease to around US$80 per barrel by the end of 2026, falling further to US$65/bbl in 2027 as global oil supply returns to oversupply.
Global GDP growth would slow from 3 per cent in 2025 to 2.3 per cent in 2026, with recession confined to the Middle East, before the world economy broadly returns to its pre-conflict trajectory by Q4 2026.
The Summer Settlement scenario assumes a ceasefire holds, but negotiations drag into late summer, keeping the Strait largely closed until September.
Oil and LNG shortages would persist through Q3 2026, tipping the global economy into a shallow recession in the second half of the year.
Global GDP growth would fall below 2 per cent in 2026, resulting in what Wood Mackenzie describes as modest but permanent economic scarring relative to the pre-war baseline.
The most severe Extended Disruption scenario envisions the Strait remaining largely closed through end-2026, with recurring tensions sustaining supply disruption.
The consequences would be severe: Brent crude prices could approach US$200/bbl by year-end despite global oil demand falling by 6 million b/d, while diesel and jet fuel prices could surge toward US$300/bbl in major refining centres.
The global economy could contract by as much as 0.4 per cent in 2026, the third global recession this century.
The Middle East could see GDP shrink by 10.7 per cent, while EU27 GDP declines by 1.5 per cent and US growth falls below 1 per cent.
The report finds that even under the most optimistic scenario, LNG markets would remain tight through summer 2027 as Gulf export infrastructure recovers gradually.
A major global LNG expansion (expected to add around 200 Mtpa of supply by 2031, approximately 50 per cent above current levels) would be delayed rather than eliminated, with US LNG cargo cancellations potentially required to rebalance the market.
Under Extended Disruption, the outlook darkens considerably.
Up to 85 Mtpa of existing Gulf LNG supply could be permanently lost, while around 75 Mtpa of capacity under construction faces multi-year delays, leaving global LNG supply on average 70 Mtpa below pre-conflict expectations.
“Persistent supply uncertainty would accelerate efforts to diversify away from imported LNG, supporting coal resilience and faster growth in renewables and electrification across Asia and Europe,” said Massimo Di Odoardo, VP of Gas and LNG Research at Wood Mackenzie.
“LNG prices would remain elevated through to 2030, supporting investments in new LNG outside the Gulf, but lower long-term demand would risk undermining the industry’s future perspectives.”
Beyond the immediate supply shock, Wood Mackenzie warns that a prolonged conflict could accelerate structural shifts across global energy.
Import-dependent economies across Europe and Asia would intensify electrification efforts, while producers outside the Gulf (including US LNG exporters) stand to benefit from demand for supply diversification.
The report also flags the growing strategic importance of critical minerals as clean energy deployment accelerates.
“The long-term outlook points to structurally weaker oil prices than in our pre-conflict base case if importing countries accelerate efforts to reduce oil dependence,” said Alan Gelder, Senior VP for Refining, Chemicals and Oil Markets at Wood Mackenzie.
“If electrification advances more aggressively and oil imports are displaced, this will add further downward pressure on prices, with Brent potentially trending US$10/bbl lower than the quick peace scenario in the medium/long-term.
“This outlook is, however, challenged by both the pace of the energy transition and higher energy costs for oil-importing economies that seek to reduce reliance on hydrocarbons.”
Martin struck a sobering note in conclusion, stating: “The consequences of an extended disruption would extend well beyond energy markets.
“It would test the resilience of global trade, industrial supply chains and economic growth simultaneously, reinforcing the urgency of achieving a resolution.”
