Is the nightmare scenario for global energy here?
Daniel Yergin
Published MAR 6 2026 - Financial Times
The Iran crisis is unfolding in a world in which oil and gas supplies are more diversified than in previous decades
The roots of the deepening crisis in the Gulf go all the way back to strikes by oil workers in Iran in the autumn of 1978 — an essential part of the protests that toppled the Shah just a few months later. The ensuing disruption of oil from one of the world’s major suppliers set off panic in the global market. This was amplified by the consolidation of power by the Islamic republic, whose revolutionary zeal included unending enmity towards the west, particularly the US.
One legacy of all this has been the nightmare scenario of the oil that flows through the Gulf being interdicted by an extended and destructive war. The fear? That this will result in skyrocketing energy prices that send the world economy plummeting into a deep recession.
Ever since the war in Iran began a week ago, Tehran has done everything it can to turn this into reality. A key target is the Strait of Hormuz — one of the globe’s central maritime chokepoints. About 20 per cent of the world’s oil normally travels through this passage. But its importance is not limited to oil. Since 1997, the Gulf — principally Qatar — has become a major source of liquefied natural gas. Nearly 20 per cent of world LNG now also flows through these narrow waters.
On any given day, as many as 90 tankers could usually be seen sailing through the strait. Now there are virtually none. While insurance policies for shipping in the region remain active, very large
war-risk premiums are being added. Several commercial vessels in the Gulf or just outside the Strait of Hormuz have been targeted with drones. The threat of attack by weaponised Iranian speedboats remains.
The main markets for Gulf supplies used to be Europe and the US. But in economic terms the Strait now points east, meaning the immediate crisis is focused on Asia. Last year, over 80 per cent of the oil and 90 per cent of LNG coming out of the Gulf went to Asia.
This does not mean that the current disruption is only an Asian problem. Global oil and gas markets are grappling with the crisis. As of Friday morning, the Brent crude oil benchmark was up about 50 per cent from where it was before the US military build-up began in the Gulf. Meanwhile Asian buyers deprived of Qatari cargoes are bidding up the price on the Asian spot market to pull mainly US cargoes away from Europe. Asian spot LNG prices have almost doubled since the war began and the European natural gas price is up about 50 per cent, which puts new pressure on Europe’s economy.
Moreover, Europe and Africa depend on the Gulf for a substantial part of their jet fuel. The longer the war goes on, the more upward pressure will be applied on prices. Shortfalls in Asia will soon show up on gasoline pumps in North America.
Shipping through the Strait of Hormuz has stopped for now. But the most difficult scenario would be severe damage to infrastructure and a lengthy closure of the strait. That would fuel fears of longer-term supply shortfalls.
Yet this crisis is unfolding in a world in which the global oil and gas system is more resilient and diversified than it has been for decades. Iran was once one of the key oil suppliers to the world. No longer. Its exports, constrained by sanctions, amount to less than 2 per cent of global supplies, most of which go to China at discounted prices.
A similar change has taken place in Venezuela. Once a star of world oil and one of the founding members of Opec, today it can hardly even be called a petrostate. It produces less oil than the US state of North Dakota and a quarter as much as neighbouring Brazil.
But the biggest change has occurred in the US. Less than two decades ago it was the world’s largest importer of oil. Now it is the largest producer. Just ten years ago the US exported its very first cargo of LNG. Now it is the world’s largest exporter of LNG.
Russia, though constrained by sanctions and price restrictions, remains a major exporter of oil. But America’s new supplies proved critical when Vladimir Putin tried to use the “energy weapon” by cutting off natural gas supplies to Europe. He intended to inflict enough economic pain to shatter the coalition supporting Ukraine. The effort failed. One reason was that US LNG could replace substantial amounts of shuttered Russian gas. Overall, the shale revolution has brought a new stability to the global markets.
Resilience takes other forms as well. China has been pouring huge amounts of oil into storage, which it can now draw on, and the countries that belong to the International Energy Agency all maintain strategic stocks. The disruption underlines the importance of energy security and how closely it is tied to national security.
There is strength on the ground as well. Gulf countries have long recognised that the strait is a major risk for them. Saudi Arabia has prudently built a network of pipelines running east to west from the Persian Gulf to the Red Sea. Abu Dhabi has built a smaller pipeline that runs parallel to the strait.
Current oil prices in the $90s are far from the worst-case scenario. But right now, the world is looking at the biggest disruption in oil production in history as well as a resounding shock to global gas markets. The key question for global energy markets now is the duration of this explosive war.