Iran war oil shock: 20 million bpd supply loss equals 5 major disruptions between 1978–2022

• Oil prices surge above $100 per barrel amid West Asia tensions
• Strait of Hormuz closure triggers historic oil supply shock
• Upstream firms gain, downstream margins hit by high prices

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Global energy markets have entered a fresh wave of volatility amid the escalating tensions in West Asia with oil prices surging above $100 per barrel for the first time since 2022.

While global energy markets have faced supply crunch before, the closure of Strait of Hormuz — a key route through which 20% of global crude oil flows — has sent shockwaves across international markets.

The world is now experiencing its largest oil supply shock in history, losing nearly 20 million barrels of oil supply per day, which is roughly the same size as the previous five supply shocks that global energy markets witnessed between 1978-2022, the Kobeissi Letter, an industry leading commentary on the global capital markets, noted.

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“Disruptions to key shipping routes and heightened geopolitical risks have roiled the crude flows in a much sharper and more immediate manner. What especially differentiates the current situation is the stacking of multiple supply disturbances, including interruptions along strategic transport corridors, unplanned outages, and reduced output in parts of the Gulf creating a broader and more unpredictable backdrop than many previous episodes,” said Sourav Mitra, Partner – Oil & Gas, Grant Thornton Bharat.

The Kobeissi Letter said that even before the West Asia conflict, global energy markets had faced several supply shocks, starting with the Yom Kippur War in 1973, which put around 4.5 million barrels per day of oil under constraint. The war also sent oil prices surging to about $12 per barrel from $3, after Arab members of the Organization of the Petroleum Exporting Countries imposed an oil embargo on countries supporting Israel.

Post the Yom Kippur War, the 1978 Iranian revolution triggered another crisis when energy markets lost access to roughly 5% or 5.5 million barrels per day of global oil supply as Iran’s oil production fell sharply. Crude oil prices rose to $34-$36 per barrel by the mid-1980s, rising from $13 per barrel in mid-1978.

In 1980-81, oil prices rose to around $32-40 per barrel due to the Iran-Iraq war as oil supply from the two major oil producers was disrupted.

Global oil prices further spiked from roughly $15-17 per barrel in July 1990 to over $40 per barrel by October 1990 following Iraq’s invasion of Kuwait which put 4.3 million bpd of global oil supply under crisis.

The most disruptive oil price shocks came in 2008 when oil prices peaked $147 per barrel driven by higher demand and supply concerns followed by a collapse due to the global financial crisis.

The Russia-Ukraine conflict in 2022 again tested the global energy markets when global oil prices surged past $100 per barrel with Brent crude reaching near $139/bbl.

Oil has crossed the $100/bbl threshold several times in the past, typically during periods of strong global demand or supply-side constraints.

“The 2008 spike, when crude oil breached the $145/barrel mark, was driven largely by financial‑market dynamics, rapid demand growth in emerging economies, and concerns over supply tightness. More recently in 2022, crude prices once again moved past $100/barrel after Russia’s invasion of Ukraine triggered wide‑ranging sanctions on one of the world’s largest oil exporters, raising fears of supply shortages and pushing benchmarks to their highest levels since 2014,” Mitra noted.

In 2022, when India faced a similar supply‑driven disruption, the government responded by cutting central excise duty reducing petrol excise by Rs 8/litre and diesel excise by Rs 6/litre while many states also reduced VAT (value added tax) to ease pump prices for consumers.

“This time, in addition to fiscal tools, the government may also look to increase strategic purchases by making use of the 30‑day window for Russian crude supplies; while simultaneously tapping other diversified suppliers such as US, Canada, and West Africa whose shipments are not dependent on the disrupted Strait of Hormuz,” Mitra said.

Crude Shock

The military escalation between the US-Israel and Iran has put the Middle East on edge, with tensions around the Strait of Hormuz disrupting crude shipments and unsettling global oil flows and production.

Rising crude oil prices that hovered around $107 per barrel on March 9 are likely to benefit upstream players, such as ONGC and OIL, as their realizations are pegged to the crude oil benchmarks, Mitra said.

At the same time, downstream companies face the brunt as their refining and marketing margins squeeze due to their inability to pass on the entire costs to customers.

Analysts noted that since the current turmoil involves major oil-producing countries of the region, the supply disruption is likely to persist for some time.

“In such a scenario, the government will have to weigh options in a measured manner which balances the interests of all stakeholders involved upstream/ downstream companies, fiscal situation, and the citizens,” Mitra said.