The Strait of Hormuz poses a risk of supply disruption for oil and gas markets, causing concern among industry players.

• The Strait of Hormuz is widely recognized as a vital oil transit chokepoint.
• The waterway, a narrow but strategically important channel, connects crude producers in the Middle East with key markets worldwide, being situated between Iran and Oman.
• An event causing a blockade through the Strait of Hormuz is viewed as a worst-case scenario by many analysts, potentially leading to oil prices exceeding $100 per barrel.

The ongoing conflict in the Middle East has brought the world's crucial oil pipeline back into the global limelight.

The Strait of Hormuz is a narrow but strategically important channel that links crude producers in the Middle East with key markets across the world, making it a vital oil transit chokepoint.

The U.S. Energy Information Administration (EIA) reported that in 2022, the average daily oil flow in the Strait of Hormuz was 21 million barrels, which accounts for approximately 21% of global crude trade.

If oil cannot pass through a significant obstacle, even for a brief period, it can increase global energy costs, increase shipping expenses, and cause significant delays in supply.

A blockade or significant disruption to flows via the Strait of Hormuz is viewed as a worst-case scenario for many energy analysts, who believe it could cause oil prices to rise above $100 a barrel.

If Israel attacks Iran, and Iran responds by slowing down or attempting to block the Strait of Hormuz, the consequences could be disastrous, according to Alan Gelder, an energy analyst at Wood Mackenzie, who spoke on CNBC's "Squawk Box Europe" on Monday.

According to Gelder, the effect would be more dramatic if this occurred because 20% of global crude exports pass through this location, which includes countries such as Saudi Arabia, Kuwait, and Iraq, as well as the UAE to some extent, and these countries are the holders of the global spare capacity.

He stated that the market is not taking into account the worst-case scenario but rather the potential impact on Iranian energy infrastructure.

The possibility of Israel launching an attack on Tehran's energy infrastructure has increased due to its promise to retaliate against Iran following a ballistic missile attack last week.

The global oil market is significantly impacted by Iran, which has vowed a strong reaction if Israel takes any additional actions.

How high could oil prices go?

Some energy analysts have raised concerns about the potential risks of a widening conflict in the Middle East on oil markets.

According to Saul Kavonic, a senior research analyst at MST Financial, oil prices could experience a significant increase due to supply disruptions in the Strait of Hormuz.

According to Kavonic, if there is an attack on Iranian production, up to 3% of global supply could be curtailed, and even tighter sanctions could curtail supply by up to 3%. This could cause oil to approach or exceed $100 per barrel.

An oil price impact three times larger than the shocks of the 1970s could occur if transit through the Strait of Hormuz was impacted, resulting in a price of $150 or more per barrel of oil.

On Monday, oil prices experienced a more than 3% increase, continuing their upward trend despite achieving their sharpest weekly increase since early 2023 the previous week.

Brent crude futures with December expiry were trading 1.5% lower at $79.74 a barrel, while U.S. West Texas Intermediate futures were down 1.5% at $75.99.

According to Bjarne Schieldrop, the chief commodities analyst at Swedish bank SEB, when supply is severely limited in commodity markets, the price typically increases to between five and ten times its usual value.

If the Strait of Hormuz was closed for a month or more, Brent crude would likely spike to USD 350/b, causing the world economy to crater and the oil price to fall back to below USD 200/b again over some time, according to Schieldrop's research note from Friday.

He added that, given the current state of the oil market, the likelihood of such a development is very low.

What about gas markets?

Any disruptions to transit through the Strait of Hormuz would cause significant repercussions in global energy markets, according to Warren Patterson, head of commodities strategy at ING.

Patterson stated in a research note published on Oct. 4 that the key concern, although still extreme, would be if these disruptions spill over to the Strait of Hormuz and affect Persian Gulf oil flows.

If there is a substantial interruption to these flows, oil prices will reach unprecedented heights, exceeding the previous record of $150/bbl in 2008, he stated.

Patterson of ING stated that any disruption in the supply of the Strait of Hormuz would not only affect the oil market but also have far-reaching consequences.

Additionally, it may cause interruptions in the flow of liquified natural gas from Qatar, which accounts for more than 20% of global LNG trade, as he stated.

"The global gas markets would be taken aback by this development, especially during the northern hemisphere winter when there is a higher demand for gas for heating purposes. Although there is an increase in new LNG export capacity, it is not enough to match the Qatari export volumes."