Trump orders Hormuz blockade, 15% supply squeeze risks $100 oil

Hormuz Blockade & What It Means for ASX Investors

Trump has ordered a naval blockade of the Strait of Hormuz starting Monday, April 14, after peace talks with Iran collapsed.

This follows six weeks of escalating conflict between the US, Iran and Israel. The blockade is expected to target Iranian oil exports and intercept tankers attempting to move through the strait.

We think this could begin another escalation in tensions and raises the risk of a much more serious disruption to global energy markets.

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The investor case, what changes now

The blockade removes another 2 million barrels per day of Iranian crude from the market, on top of the 13 million bbl/day already disrupted across the Gulf. Global oil supply sits at roughly 100 million bbl/day, so we are now looking at a potential 15% supply squeeze. Oil was trading in the US$65 to US$75 range before this, but if the blockade holds and the market views it as credible, WTI could push back above US$100 depending on how long it lasts and how much resistance Iran can sustain.

Iran still has leverage. Around 60% of its Islamic Revolutionary Guard Corps speedboat fleet remains intact, and the Strait of Hormuz is one of the most vulnerable chokepoints in the world. It is narrow, heavily exposed and highly susceptible to disruption, particularly with mines in play.

The global economy is already under pressure, with factories across Asia cutting production and jet fuel shortages starting to emerge. If another 2 million bbl/day is taken offline, the market could tip into a demand destruction spiral, where recessionary pressure drags oil demand lower. Or it could create enough economic pain that one side is forced to give way first. Iran believes it can outlast the US and the markets. The US believes Iran will crack first. That is where the real risk sits.

What to watch in the next 72 hours

On Monday at 10:00 a.m., the key thing we need to watch is how the blockade actually begins and, more importantly, how credible US enforcement looks from the outset. Do US naval forces intercept tankers on day one, or does the response fall short of the rhetoric?

If they do act immediately, the next question is how Iran responds. Does it directly target US forces, or does it test the edges of escalation through mine-laying, proxy strikes or other indirect pressure points?

The oil market will give us an early read on how seriously this is being taken. If Brent rises 5% to 10% early in the week, that likely reflects risk being priced in. If it moves 15% or more, the market is telling us it expects a more prolonged and damaging period of disruption.