Iran’s Oil Shipments Persist Despite Strait Blockade, Triggering Disrupted Supply and Heightened Market Volatility

Historic Supply Shock in the Strait of Hormuz: An Uneven Impact

The recent turmoil in the Strait of Hormuz has triggered a supply crisis of unprecedented scale, but the consequences are far from uniform. While the usual flow of approximately 20 million barrels per day through this critical passage has dwindled to almost nothing, Iran’s oil shipments have largely continued unaffected. This stark contrast lies at the heart of the current market instability.

The magnitude of the disruption is extraordinary. The International Energy Agency (IEA) reports that oil and petroleum product shipments via the Strait have plummeted from around 20 million barrels daily before hostilities began to a mere fraction of that now. As a result, Gulf oil producers have been compelled to slash their output by at least 10 million barrels per day. The region’s capacity to divert these volumes is extremely limited. Although several pipelines offer alternative routes, their total throughput is nowhere near sufficient to compensate for the loss. The largest, Saudi Arabia’s East–West pipeline, can handle 5–7 million barrels per day, while the UAE’s Habshan–Fujairah pipeline adds another 1.5–1.8 million barrels per day. Iraq’s Kirkuk–Ceyhan pipeline provides a smaller alternative. Collectively, these options cannot make up for the shortfall, leaving a significant and irreplaceable gap in supply.

This imbalance is particularly striking. While other Gulf exporters have seen their shipments collapse, Iran has managed to keep its exports flowing. According to a Reuters analysis of shipping data, Iran has shipped about 13.7 million barrels of crude oil since the onset of attacks by Israel and the U.S. on February 28. Another estimate puts Iranian exports at roughly 16.5 million barrels in the first 11 days of March. This ongoing movement is crucial, as it not only sustains Iran’s revenue but also offers a risky, yet vital, avenue for oil to reach international markets.

As a result, the strait remains partially navigable, but primarily to Iran’s advantage, while the rest of the region’s output remains stranded. The outcome is a supply shock that is both massive and highly uneven. The world is now deprived of over 10 million barrels of Gulf oil each day, with few options for rerouting. Iran’s continued exports add a persistent element of uncertainty, intensifying market volatility and making global oil prices increasingly dependent on the unpredictable actions of a single exporter.

Bypass Pipelines: Constraints and Market Reaction

The financial markets have responded rapidly and dramatically to the Strait of Hormuz crisis, but the physical limitations of alternative routes will ultimately determine how high prices can go. While a handful of pipelines offer ways to circumvent the strait, their combined capacity is insufficient to replace the vast quantities typically shipped through this chokepoint. Saudi Arabia’s East–West pipeline is the largest, with a capacity of 5–7 million barrels per day, supplemented by the UAE’s Habshan–Fujairah line at 1.5–1.8 million barrels per day, and Iraq’s Kirkuk–Ceyhan pipeline, which is smaller. Together, these alternatives cannot absorb the lost supply, leaving a substantial gap that cannot be filled.

This bottleneck is central to understanding the current price swings. Oil prices have soared, rising from an average of $71 per barrel on February 27 to $94 per barrel by March 9. The surge has been dramatic, with Brent crude leaping $7.80 in a single day following reports of Iranian mines in the strait. This is more than a simple supply disruption—it’s a crisis marked by a significant risk premium. The market is reacting not only to current production cuts but also to the uncertainty surrounding the duration of the closure.

In essence, while alternative pipelines offer some relief, they are far from a comprehensive solution. They may facilitate limited Iranian exports and provide minor support for Gulf producers, but they cannot compensate for the loss of 10 million barrels per day. The surge in prices reflects this reality: while prices have jumped, the rally is capped by the finite capacity of these bypass routes. If the strait remains closed for an extended period, more production will be shut in, storage will fill, and prices could climb even higher. However, the hard limits of pipeline infrastructure mean that while market anxiety is justified, it is also constrained by physical realities.

Wider Supply Chain Disruptions and Inventory Challenges

The shockwaves from the Strait of Hormuz are not limited to oil alone. The closure of this vital passage threatens to disrupt global supply chains, with metals like aluminum already experiencing price increases and other commodities at risk. This broader disruption could intensify inflationary pressures well beyond the energy sector.

The effects are already apparent in metals markets. Aluminum, for instance, is heavily sourced from the Middle East for U.S. imports. As the conflict drags on, industry analysts warn that continued disruption could drive up costs for industries such as automotive, aerospace, and construction. This is not a distant threat; supply chains are tightening now. The impact also extends to agriculture, as about a third of the world’s fertilizer trade passes through the Strait. With spring planting season approaching in key regions like the U.S. Midwest, any prolonged blockage could significantly worsen food inflation.

For oil, the market’s ability to absorb the shock is reaching its limits. The IEA has pledged to release 400 million barrels from emergency reserves, but the main challenge is storage. With tanker traffic through the strait nearly halted, Gulf producers are forced to reduce output as storage facilities reach capacity. This creates a feedback loop: reduced export capacity leads to more production cuts, which in turn fills storage even faster, further restricting output. The IEA estimates that at least 8 million barrels per day of crude production are being curtailed, with an additional 2 million barrels per day of condensates and natural gas liquids affected.

Globally, the strain is evident. The IEA forecasts that worldwide oil supply will drop by 8 million barrels per day in March. While increased production from non-OPEC+ countries like Kazakhstan and Russia helps offset some of the loss, it is not enough to fully compensate for the Gulf’s shortfall. Simultaneously, demand is also declining, with the IEA predicting that widespread flight cancellations and disruptions to LPG supplies will reduce global oil demand by about 1 million barrels per day during March and April. This dual squeeze on supply and demand adds further instability to an already volatile market.

Ultimately, the supply shock is evolving into a systemic risk. While it began with oil, its effects are rippling through metals, fertilizers, and other essential goods. The initial price spike is being moderated by the realities of storage and limited alternative routes. As the crisis continues, the focus will shift from a pure supply shortage to broader economic challenges, with full storage tanks and export restrictions increasingly limiting the region’s output.

Key Drivers and Risks for the Oil Market Balance

The immediate direction of the oil market depends on several crucial factors, all centered on how long the conflict lasts and how resilient global supply remains. The most significant uncertainty is when shipping through the Strait of Hormuz will resume. As long as the risk persists, tankers will avoid the area, forcing Gulf producers to cut output as storage fills, perpetuating high prices.

The main threat to the supply-demand balance is a prolonged closure of the Strait. This scenario has already added a substantial risk premium to oil prices, reflecting the market’s uncertainty about the conflict’s impact on supply. The IEA expects production shut-ins to peak in early April, but this projection assumes a quick return to normal shipping. Any delay will necessitate further production cuts, tightening the market and supporting higher prices. The risk premium is not speculative; it directly mirrors the real danger of stranded oil.

Counterbalancing this pressure is the potential for non-OPEC+ producers to sustain higher output. The IEA projects a global supply drop of 8 million barrels per day in March, with increased production from Kazakhstan and Russia partially offsetting Middle Eastern cutbacks. This additional output is vital, as it represents the entire anticipated increase in global oil supply for 2026, estimated at 1.1 million barrels per day. However, these producers have limited capacity and cannot fully replace the lost volumes from the Gulf.

Another important factor is the extent of demand reduction. The ongoing conflict is already curbing demand, with widespread flight cancellations and major disruptions to LPG supplies expected to lower global oil consumption by about 1 million barrels per day in March and April. This decline, combined with higher prices, adds further uncertainty to consumption forecasts. The IEA has already revised its 2026 demand growth estimate downward by 210,000 barrels per day.

In summary, the oil market is caught between powerful opposing forces. The threat of a prolonged closure and the physical limits of alternative routes set a clear ceiling on the supply shock. At the same time, increased output from non-OPEC+ countries and weakening demand will determine whether prices stabilize or continue to rise. For now, the situation remains precarious, with the reopening of the Strait of Hormuz as the single most critical factor shaping the market’s future.