The closure of the Strait of Hormuz has led to a significant tightening of global oil supply, with Brent crude briefly surpassing USD126 per barrel, according to OCBC strategists Sim Moh Siong and Christopher Wong [1]. This supply shock has been exacerbated by ongoing inventory drawdowns, which have helped prevent even higher prices despite the disruption [1]. On May 4, Brent crude was trading at $111.23 per barrel, up 2.9% for the day, while U.S. West Texas Intermediate rose 2.2% to $104.16 per barrel [2]. Since the onset of the U.S.–Iran conflict on February 28, oil prices have surged by more than 50% [2].
Despite these developments, equity markets have shown resilience, with the S&P 500 reaching a new all-time intraday high of 7,230.12 on May 1 [2]. Amrita Sen, founder and director at Energy Aspect, described this as 'extremely misplaced euphoria,' warning that investors are underestimating the risks posed by the energy shock and could be 'sleepwalking into a big recession' [2]. Sen emphasized that the market is not adequately pricing in the potential for prolonged supply disruptions, which could require oil prices to rise further to force demand reduction, potentially reverting to 2013 demand levels—about 10 million barrels per day less than current consumption [2].
OCBC strategists echoed the need for higher oil prices if the Strait of Hormuz remains closed for months, revising their year-end Brent forecast to near USD80 per barrel, up from a previous estimate of USD70 [1]. They also noted that supply recovery would be uneven due to damaged infrastructure, supporting higher prices into the second half of 2026 [1]. Sen projected that $80-90 per barrel could become the new floor for oil prices, with higher-for-longer prices impacting not only oil but also LNG, chemicals, fertilizers, and potentially food prices due to disruptions in urea transport and natural gas supply to the fertilizer sector [2].
OPEC has pledged to increase oil production, but Sen characterized this move as largely symbolic and insufficient to offset the lost supply from the Hormuz closure [2]. Jens Eisenschidt, chief Europe economist at Morgan Stanley, highlighted the broad economic pressures resulting from the oil shock, including jet fuel shortages affecting airlines, rising gasoline prices in the U.S., and challenges for manufacturers reliant on oil inputs [2].
Both sources agree that the reopening of the Strait of Hormuz and the pace of supply recovery will be critical in determining future market dynamics. However, while OCBC expects Brent to end the year near USD80 per barrel, Sen suggests that $80-90 could be the new price floor, indicating a slightly more bullish outlook on sustained high prices [1][2].
CONCLUSION
The closure of the Strait of Hormuz has triggered a sharp rise in oil prices and heightened concerns about a potential global recession, even as equity markets remain optimistic. Analysts warn that unless supply recovers swiftly, higher oil prices may persist, impacting a wide range of industries and commodities. The market's current optimism may be misplaced given the scale of the ongoing energy crisis.