Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
The effective closure of the Strait of Hormuz is likely to be temporary given its vital economic role, Fitch Ratings said in an assessment.
“This, alongside global oil market oversupply, should limit oil price rises and mitigate any potential disruptions to Iranian oil supply,” the global rating agency said.
“We do not expect significant upside to our December 2025 assumption of an average Brent oil price of $63/bbl for 2026,” Fitch Ratings said.
The strait is not formally closed, but vessels are increasingly avoiding it given 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 vessels.
“However, we expect this effective closure of the strait to be temporary. It is a vital artery for seaborne oil transportation, with limited alternative routes,” Fitch Ratings said.
Prior to the conflict, around 20 million barrels per day of crude oil and petroleum products transited the strait, accounting for about a quarter of global seaborne oil trade and a fifth of global oil consumption, Fitch Ratings said.
About half of the oil volumes transported through the strait are exports from Saudi Arabia and the UAE, with the remainder from Iraq, Kuwait and Iran. About half of these exports go to China and India.
“A protracted closure would affect both exporting and importing countries and therefore is not our baseline assumption,” Fitch said.
If the strait were to remain effectively closed for a prolonged period, naval protection for tanker navigation could be considered, as occurred during the 1980s Iran–Iraq war, Fitch added.
In addition, the global oil market is oversupplied, which should limit the geopolitical risk premium and cap risks to oil price increases. Global supply growth exceeded demand growth in 2025, and Fitch expects this trend to continue in 2026.
“Supply increased by about 3.3 million barrels per day in 2025, while demand grew by well below 1 million barrels per day. We forecast supply growth of 2.4 million barrels per day in 2026, with demand growth of about 0.8 million barrels per day.
Half of the supply increases in 2025–2026 come from unaffected non-OPEC+ producers. OPEC+ spare production capacity is 4.3 million barrels per day,” Fitch Ratings said.
In addition, global observed oil inventories rose by 1.3 million barrels per day in 2025 to reach their highest level since March 2021. Total global inventories stood at 8.2 billion barrels at end-2025. This is sufficient to cover a halt in oil shipments via the Strait of Hormuz for more than 400 days.
Saudi Arabia and the UAE have some infrastructure that can bypass the strait, which may help mitigate transit disruptions. Saudi Aramco operates the 5 million barrels per day East–West crude oil pipeline to an export port on the Red Sea. The UAE operates a 1.5 million barrels per day pipeline linking its oil fields to the Fujairah export terminal on the Gulf of Oman, with a maximum achieved flow of 1.8 million barrels per day.
While Iran is a sizeable oil producer, producing about 3.5 million barrels per day and exporting about 2 million barrels per day, it accounts for only about 3.5% of global crude oil production. This means that potential supply disruptions would likely be offset by global market oversupply.
However, the duration and intensity of the increasingly regional conflict remain uncertain.
“Any protracted blockage of the strait or material and sustained damage to the region’s oil and gas production and transportation infrastructure would materially affect oil markets and likely result in a more material rise in our base case 2026 oil price assumption,” Fitch Ratings said.
