US-Iran War Fears Spike Oil Markets
US-Iran tensions escalated with reports of US one-way attack drones used on Iran for the first time, explosions in Shiraz, and missile hits near Tel Aviv. Iran threatened to close the Strait of Hormuz if war breaks out—a move that could stop oil tanker traffic and spike global prices. Investors are eyeing defense stocks like Raytheon while the UAE Ministry urged no oil stockpiling, affirming stable supplies.
The Strait of Hormuz is the world's most critical oil chokepoint, with an average of 21 million barrels passing through daily, equivalent to about 21% of global petroleum liquids consumption. More than 80% of the crude oil and condensate moving through the strait is destined for Asian markets, including major importers like China, Japan, India, and South Korea. A complete closure of the strait could cause oil prices to surge to between $150 and $200 per barrel, reminiscent of the 1970s oil crisis. Analysts warn that a disruption lasting one to three months would create a more than 70% probability of recession for Europe and Japan, and a 50-60% probability for the United States. Historically, Middle Eastern conflicts have repeatedly shocked energy markets. The 1973 OPEC embargo quadrupled oil prices from $3 to $12 per barrel, while the 1990 Iraqi invasion of Kuwait caused prices to spike by 112% in just two months. The 1979 Iranian Revolution also saw oil prices double between 1978 and 1981. The United States maintains a significant military footprint in the region with roughly 40,000 troops. This presence is anchored by major installations like Al Udeid Air Base in Qatar, the largest US base in the region with 10,000 personnel, and the Navy's Fifth Fleet, which is headquartered in Bahrain and patrols the Gulf. The recent military buildup is the largest since the 2003 invasion of Iraq, involving multiple carrier strike groups, including the USS Abraham Lincoln and USS Gerald R. Ford. This deployment is intended to deter aggression and protect maritime commerce in the vital waterway. Defense contractors like Raytheon (RTX) often see increased investor interest during such conflicts. The company entered the current crisis with a defense backlog of nearly $100 billion and has co-developed key regional defense systems like Israel's Iron Dome and David's Sling interceptor. To mitigate risks, Saudi Arabia and the UAE have pipelines that can bypass the strait, but their combined unused capacity is estimated to be around 2.6 to 3.5 million barrels per day. This falls far short of the 21 million barrels that transit through the strait daily, leaving countries like Iraq, Kuwait, and Qatar almost entirely dependent on the waterway for their exports.
