Why markets are tracking Hormuz as that line between oil volatility and an oil crisis

That distinction is where market anxiety deepens.

• Oil markets face higher risk premiums after US-Iran tensions rise
• Strait of Hormuz disruption could trigger a global supply crisis
• HSBC keeps Brent crude forecast at $65 for 2026 amid uncertainty

Did our AI summary help?

The escalation in tensions between the US and Iran following air strikes has pushed oil markets beyond a simple price reaction. Oil markets are currently pricing higher risk premiums and market experts are increasingly focused on this structural question — what would turn a price spike into a supply shock. That line, market participants say, runs through the Strait of Hormuz.

HSBC Global Investment Research's latest note explains that oil market risks have become asymmetrical following the latest escalation involving Iran. The note mentions that the downside risks to oil prices are limited, while upside risks rise sharply if the conflict worsens. The key vulnerability being the Hormuz transit.

HSBC has kept its Brent crude forecast unchanged at $65 per barrel for 2026. However, it stressed that it has “no conviction” on how the situation in Iran may evolve after the air strikes, and that market outcomes hinge on whether the conflict spreads or disrupts shipping.

The bank also flagged a critical constraint for the global oil system. While spare production capacity in the Middle East remains significant, it would not be accessible if the Strait of Hormuz were closed, limiting the effectiveness of supply-side buffers.

That distinction is where market anxiety deepens.

The Strait accounts for about 20% of global petroleum liquids and 20% of global liquefied natural gas flows. As long as it remains open, markets are dealing with volatility. If access is disrupted, the issue shifts from pricing to availability.

Several analysts point out that this is why oil price levels alone do not define a crisis.

Market participants say crude had already factored in geopolitical risk before the latest escalation. Prices moving higher from here would reflect risk premiums. But a crisis scenario would emerge only if physical flows are hit — either through damage to export infrastructure or sustained disruption to shipping routes.

In that context, Saudi Arabia’s willingness to raise output and OPEC+ production increases from April provide price relief, not route protection. Additional barrels do little good if oil cannot move freely through chokepoints.

This is particularly relevant for large importers.

Around 50% of India’s crude imports, or roughly 2.6 million barrels per day, pass through the Strait of Hormuz. Ponmundi R, CEO, Enrich Money, said that even without a full closure, prolonged disruption could strain supply chains, push up landed costs, and amplify macro pressures beyond what a normal price spike would cause.

Analysts tracking downstream sectors note that in a crisis scenario, the challenge shifts from margin compression to operational stress — delayed cargoes, higher freight and insurance costs, and limited flexibility in sourcing.

Prashant Vasisht of ICRA Limited, also flagged that a prolonged or widening conflict involving multiple oil and gas producers could disrupt both crude and LNG supplies globally, raising energy prices and increasing volatility across markets.

HSBC extended the risk assessment beyond oil.

It said a broader conflict could weigh on sentiment, economic activity and capital flows across parts of the Middle East, even if domestic policy buffers are in place. On currencies, the bank expects the US dollar to remain firm in the near term, supported by uncertainty, while cautioning that geopolitical effects on FX can reverse quickly.

HSBC’s base case remains intact. Supply continues to flow. Forecasts are unchanged. But the range of outcomes has widened. As long as Hormuz remains open, markets deal with volatility and higher prices — the oil impact phase. If that route is disrupted, the conversation shifts to supply stress and crisis management.

Click here for more info and updates through our LIVE Blog

Read more: Half of India’s oil imports at risk as US-Israel strike on Iran raises Hormuz supply fears