A prolonged closure of the Strait of Hormuz could unleash the biggest global energy shock in decades, pushing Brent crude prices close to $200 per barrel, disrupting nearly one-fifth of global LNG supplies and triggering the world’s third recession this century, according to a new report by Wood Mackenzie.
The report warned that more than 11 million barrels per day (bpd) of Gulf crude and condensate production and over 80 million tonnes per annum (mtpa) of LNG supply — equivalent to around 20% of global LNG trade — remain exposed to severe disruption if tensions around the Iran conflict escalate further.
“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.”
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Three War Scenarios
Wood Mackenzie has outlined three scenarios — Quick Peace, Summer Settlement and Extended Disruption — each carrying sharply different implications for crude prices, LNG supply and economic growth.
Under the most optimistic “Quick Peace” scenario, the Strait reopens by June after a workable peace agreement, allowing energy markets to stabilise gradually. In that case, Brent crude prices could ease to around $80 per barrel by end-2026 and further decline to nearly $65 per barrel in 2027 as oil markets return to oversupply conditions.
Global GDP growth slows from 3% in 2025 to 2.3% in 2026, with recessionary pressure largely confined to the Middle East before the world economy returns to its pre-war trajectory by late 2026. However, even under this optimistic scenario, LNG markets remain tight through summer 2027 because Gulf export infrastructure may recover only gradually and project delays slow the next phase of LNG supply additions.
The second “Summer Settlement” scenario assumes ceasefire negotiations stretch into late summer, keeping the Strait largely closed till September. Under this scenario, oil and LNG shortages persist through the third quarter of 2026, driving a shallow global recession during the second half of the year. Global GDP growth falls below 2% in 2026, leaving lasting economic damage compared with pre-war projections.
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The most severe “Extended Disruption” scenario assumes the Strait remains largely closed through the end of 2026 amid recurring military tensions and repeated supply disruptions. Under this scenario, Brent crude prices could approach $200 per barrel by end-2026 despite global oil demand falling by nearly 6 million bpd year-on-year during the second half of the year due to severe demand destruction from soaring fuel costs.
Diesel and jet fuel prices could surge towards $300 per barrel in major refining hubs while global oil inventories continue to decline sharply. The report warned that the global economy could contract by as much as 0.4% in 2026, triggering the third global recession this century.
Regional economic damage could also be severe and uneven. Middle East economies could contract by 10.7% in 2026, while EU27 GDP may decline by 1.5% in 2026 and another 0.5% in 2027. US GDP growth could remain below 1% during both years, while China’s GDP growth could slow sharply to around 3% in 2026.
Structural Shifts
The report also warned of deep structural changes in energy markets if disruptions persist. Under the severe disruption scenario, around 85 mtpa of existing Gulf LNG supply and another 75 mtpa of LNG capacity under construction could face prolonged disruption and multi-year delays, leaving global LNG supply around 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, Vice President of gas and LNG research at Wood Mackenzie.
Separately, Crisil has warned that India’s oil trade deficit is likely to widen sharply in FY27 amid rising crude prices and supply disruptions. The agency expects Brent crude to average $90-95 per barrel in FY27 against $70.3 per barrel last fiscal, increasing pressure on India’s current account deficit, fuel import bill and inflation outlook.
TOPICSBrent crudeThis article was first uploaded on May twenty-one, twenty twenty-six, at thirty minutes past ten in the night.