The war involving Iran is entering a far more dangerous phase for the global economy, with energy markets now bracing for a potential strike on Kharg Island — Tehran’s main oil export hub — that analysts warn could trigger a full-scale supply shock within weeks if the conflict intensifies further.
At the same time, tanker disruptions in the Strait of Hormuz — the artery carrying about one-fifth of the world’s oil — are already tightening physical crude availability across Asia and Europe. With US forces expanding their military presence across the Gulf and contingency scenarios increasingly focused on neutralising Kharg if shipping remains blocked, industry executives say the next few weeks could prove decisive in determining whether the current disruption turns into a sustained global energy crisis.
Adding to market anxiety is a rapid US military build-up across the Gulf, including deployments of marines and airborne forces and preparations for possible operations targeting Iran’s most critical oil export infrastructure node — Kharg Island — a move that could dramatically escalate the conflict’s economic consequences.
Kharg Island handles roughly 90 per cent of Iran’s crude exports, making it one of the single most important energy facilities in the global oil system. Any attempt to disable or seize the island could sharply tighten global supply and send prices surging almost immediately.
“There are very real, physical manifestations of the closure of the Strait of Hormuz that are working their way around the world,” said Mike Wirth, chief executive of Chevron, speaking at the S&P Global CERAWeek energy conference in Houston.
Benchmark crude prices have already surged sharply as traders price in supply risks. Prices have risen to their highest level in nearly two weeks amid escalation on multiple fronts of the US-Israel war on Iran.
Brent crude, the global benchmark, rose more than 3 per cent on Monday morning to top $116 a barrel, up more than 40 per cent since late February, while Middle East physical benchmarks such as Dubai crude have risen even faster — jumping roughly 76 per cent to about $126 a barrel — signalling tightening availability of real cargoes in Asian markets.
Analysts say this widening gap between futures prices and physical delivery costs suggests headline oil benchmarks may still underestimate the scale of disruption building across global supply chains.
“The reality of the physical market disruption is really hard to ignore,” said Ben Cahill, director for energy markets and policy at the University of Texas at Austin.
Shipping disruptions triggered by attacks on civilian vessels and regional energy infrastructure have already slowed tanker traffic across the Gulf. Although some crude flows have been rerouted through pipelines across Saudi Arabia and the UAE, these alternatives can handle only a fraction of the roughly 20 million barrels per day that normally transit Hormuz.
Governments have attempted to soften the shock through emergency measures. The United States and its allies have released an estimated 400 million barrels from strategic reserves — the largest coordinated release on record — while temporarily easing restrictions on some sanctioned oil supplies to stabilise markets.
Industry leaders stress that such interventions can only buy time if the conflict widens further.
Disruptions that began in South Asia are already spreading across wider energy markets, according to Wael Sawan, chief executive of Shell.
“They’ve moved to Southeast Asia, Northeast Asia and then more so into Europe as we get into April,” Sawan said, warning that supply tightness is expanding geographically as inventories shrink.
The strategic importance of Kharg Island explains why markets are closely watching US military movements in the Gulf. Defence planners increasingly view the island as a decisive pressure point if tanker traffic through Hormuz remains constrained — a step that could remove 1.5 to 2 million barrels per day of Iranian exports from global markets almost overnight.
Energy economists say the current crisis differs from previous oil shocks because it is being driven less by production shortages and more by transport bottlenecks at one of the world’s most critical energy chokepoints. Spare global production capacity — estimated at only 3 to 4 million barrels per day — is far too limited to offset a prolonged disruption at Hormuz.
That imbalance raises the risk that prices could climb high enough to trigger “demand destruction,” forcing industries and consumers to cut fuel consumption — a scenario historically associated with economic slowdowns or recessions.
Market expectations have so far been tempered by political signals suggesting the conflict could still ease. Traders have repeatedly reacted to comments from Donald Trump indicating that military pressure could reduce tensions with Tehran.
But with troop deployments rising, tanker traffic constrained and one of the world’s most critical export hubs now in the strategic crosshairs, analysts warn the coming weeks may determine whether the current disruption remains contained — or evolves into the most serious global oil shock in more than a decade.
