Markets Monitor Strait of Hormuz Amid Rising Oil Volatility Concerns

Oil Market Risks Escalate Amid Tensions with Iran

Key Highlights

• Oil markets are pricing higher risk premiums due to escalating tensions with Iran, with HSBC Global Investment Research warning of a structural shift from price spikes to supply shocks.
• The Strait of Hormuz, responsible for 20% of global petroleum liquids and 20% of global liquefied natural gas flows, is the key vulnerability in the global oil system.
• HSBC has maintained its Brent crude forecast of $65 per barrel for 2026, but emphasizes the uncertainty surrounding the situation in Iran.

Supply Chain Vulnerability

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• The Strait of Hormuz accounts for a significant portion of global oil and gas flows, making it a critical chokepoint in the global oil system.
• A disruption to shipping routes through the Strait would shift the market focus from pricing to availability, leading to a crisis scenario.
• Saudi Arabia's willingness to raise output and OPEC+ production increases from April may provide price relief, but would not address the issue of physical flows.

Regional Impact

• India, a major oil importer, relies on the Strait of Hormuz for approximately 50% of its crude imports, or 2.6 million barrels per day.
• A prolonged disruption to shipping routes could strain supply chains, push up landed costs, and amplify macro pressures beyond a normal price spike.
• A broader conflict involving multiple oil and gas producers could disrupt both crude and LNG supplies globally, raising energy prices and increasing volatility across markets.

Market Outlook

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• HSBC expects the US dollar to remain firm in the near term, supported by uncertainty, but cautions that geopolitical effects on FX can reverse quickly.
• The bank's base case remains intact, with supply continuing to flow and forecasts unchanged, but the range of outcomes has widened.
• A crisis scenario would emerge only if physical flows are hit, either through damage to export infrastructure or sustained disruption to shipping routes.