Mubasher: The effective closure of the Strait of Hormuz is likely to be temporary given its vital economic role, Fitch Ratings said in a recent statement.
This, alongside global oil market oversupply, should limit oil price rises and mitigate any potential disruptions to Iranian oil supply.
Fitch Ratings stated: “We do not expect significant upside to our December 2025 assumption of an average Brent oil price of $63 per barrel (bbl) for 2026.”
The strait, which closure is the key driver of oil price increases following the 28 February 2026 outbreak of the Iran conflict, is not formally closed but vessels are increasingly avoiding it given the risk of attack by Iran or its proxies, according to the ratings agency.
Oil majors have halted shipments for safety reasons, and insurers are canceling war risk cover for vessels.
Fitch Ratings added: “However, we expect this effective closure of the strait to be temporary. It is a vital artery for seaborne oil transportation, with limited alternative routes.”
Prior to the conflict, around 20 million barrels per day of crude oil and petroleum products transited the strait, accounting for about a quarter of global seaborne oil trade and a fifth of global oil consumption.
About half of the oil volumes transported through the strait are exports from Saudi Arabia and the UAE, with the remainder from Iraq, Kuwait and Iran. About half of these exports go to China and India.
Meanwhile, a protracted closure would affect both exporting and importing countries and therefore is not Fitch Ratings’ baseline assumption. If the strait were to remain effectively closed for a protracted period, naval protection for tanker navigation could be considered, as occurred during the 1980s Iran–Iraq war.
In addition, the global oil market is oversupplied, which should limit the geopolitical risk premium and cap risks to oil price increases.
Global supply growth exceeded demand growth in 2025, a trend that Fitch Ratings expects to continue in 2026.
Meanwhile, supply increased by about 3 million barrels per day in 2025, while demand grew by well below 1 million barrels per day. Fitch Ratings expected a supply growth of 2.4 million barrels per day in 2026, with demand growth of about 800,000 barrels per day.
It added that half of 2025-2026 supply increases come from unaffected non-OPEC+ producers, with OPEC+ spare production capacity is standing at 4.3 million barrels per day.
In addition, global observed oil inventories rose by 1.3 million barrels per day in 2025 to reach their highest level since March 2021.
Moreover, total global inventories stood at 8.2 billion barrels at end-2025, which is seen sufficient to cover a halt in oil shipments through the Strait of Hormuz for over 400 days.
Fitch Ratings noted: “Saudi Arabia and the UAE have some infrastructure to bypass the strait, which may mitigate transit disruptions. Saudi Aramco (Saudi Arabian Oil Company; A+/Stable) operates the 5 million barrels per day East–West crude oil pipeline to an export port on the Red Sea.”
It added: “The UAE operates 1.5 million barrels per day capacity pipeline linking its oil fields to the Fujairah export terminal on the Gulf of Oman with a maximum achieved flow of 1.8 million barrels per day.”
This means that potential supply disruption would be offset by global market oversupply, Fitch Ratings said, noting that “While Iran is a sizeable oil producer, producing about 3.5 million barrels per day and exporting about 2 million barrels per day, it accounts only for about 3.5% of global crude oil production.”
However, the duration and intensity of the increasingly regional conflict remain uncertain. Any protracted blockage of the strait or material and sustained damage to the region’s oil and gas production and transportation infrastructure would materially affect oil markets and likely result in a more material rise in our base case 2026 oil price assumption.
Fitch Ratings concluded that oil price volatility would rise if there were to be any material disruption to Iranian oil production.
Meanwhile, S&P Global Ratings said that companies exporting LNG and oil from the Gulf region through the Strait of Hormuz would feel the effects most acutely.
Earlier, GlobalData noted that Saudi Arabia and the UAE can divert some exports through pipelines and terminals outside Hormuz although capacity is limited and prone to bottlenecks which cannot fully replace seaborne flows.
