Global Energy - March Commentary

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War in the Middle East: three energy scenarios

This month, we reproduce a report that we published on Monday, 2nd March that considers three broad scenarios following the outbreak of conflict in the Middle East with associated oil, gas and energy equity implications.

Click here to watch our special webcast recorded on Tuesday, 3rd March.

The three scenarios considered, with escalating impact on the energy sector, are as follows: 

• Scenario one: the conflict is short-lived, with limited disruption to physical oil supplies, and parties return to a negotiated outcome. 
• Scenario two: the conflict is protracted, with physical shipments of oil and natural gas impacted but not stopped entirely, despite Iranian efforts.
• Scenario three: the conflict is protracted and becomes a wider war as other countries get involved. Iran is successful in shutting off a higher proportion of oil & gas supply through the Strait of Hormuz for a prolonged period.

As a reminder, Iran currently produces around 3.5 million barrels per day (3.5% of world oil supply), of which around 1.7m b/day is exported, predominantly to China. Iran holds the world’s fourth-largest oil reserves and second-largest gas reserves. There have already been several years of Iranian export volatility, driven by Western sanctions against the country’s nuclear programme.

Current situation

Before reviewing the scenarios, the following is a summary of events at the time of originally writing this report (around midday on Monday 2nd March): 

• The United States and Israel have commenced military strikes on Iran with the stated aim of regime change in Iran.
• Ayatollah Ali Khamenei, Iran’s supreme leader, has been killed along with several key military and political leaders.
• Iran has announced its intention to shut the Strait of Hormuz, and a number of oil tankers have been attacked. Tanker flow has slowed sharply, with around two hundred tankers dropping anchor close to the Strait.
• A number of oil majors and trading houses have suspended tanker sailings through the Strait of Hormuz for several days.
• OPEC has announced 0.2m b/day of quota increase for April 2026 loadings.

Scenario one

The conflict is short-lived, with limited disruption to physical oil supplies, and parties return to a negotiated outcome.

This is the least disruptive scenario, in which the conflict concludes quickly.

For oil supply in this scenario, there is limited disruption through the Strait of Hormuz, a 21-mile-wide stretch of water separating Iran from the UAE and Oman. The strait is a vital corridor that represents a critical chokepoint in global energy logistics as it facilitates the transit of approximately 20m b/day of crude oil, condensate, and oil products—equivalent to around 20% of global oil supply and 30% of seaborne oil trade. It also facilitates the transit of 20% of global liquefied natural gas (LNG) production.

Red Sea & Strait of Hormuz shipping routes showing prior Houthi attacks

Source: Al Jazeera. March 2026

With the conflict over, the global oil market is likely to return to the prior forecasted oversupply in 1Q 2026. Spot oil prices likely recede to the mid $60s, and the forward curve remains flat, reflecting a very modest risk premium for the unsteady equilibrium in the region and the market balance. Similarly, the supply of LNG is not materially affected, and European and Asian gas pricing is starting to reflect fundamental supply and demand factors. Energy equities act rationally and fall on the conclusion of the war, but maintain a risk premium.

Scenario Two

The conflict is protracted, with physical shipments of oil and natural gas impacted but not stopped entirely, despite Iranian efforts.

Trump’s comments on Sunday, 1st March, suggest that the main phase of the conflict could last for around four weeks. Beyond that, the lack of an obvious ‘end game’ increases the risk of a power vacuum and raises the spectre of lower Iranian oil production and oil exports (currently at around 3.5m b/day and 1.7m b/day respectively) as political chaos could impact production facilities (as seen historically in Iraq and Libya).

Iran oil production (000s b/day)

Source: Bloomberg, January 2026

In this scenario, Iranian efforts to shut down the Strait of Hormuz are partially successful, as some tanker traffic chooses not to pass through the Strait due to the risk of attack. To circumvent the Strait, Saudi Arabia likely re-routes some of its oil exports through the Red Sea, and the UAE re-routes some volumes via onshore pipelines to the Gulf of Oman (there is thought to be around 3-4m b/day of total spare pipeline capacity here). Nevertheless, the global oil and LNG markets suffer from supply constraints. Houthi rebels and other Iranian militias disrupt shipping in the Red Sea around the Bab al-Mandeb Strait, causing the re-routing of large volumes of seaborne oil and LNG around the Cape of Good Hope at the southern tip of Africa. Consuming countries rely on ample strategic storage for their short-term oil supplies, which will be politically acceptable in the near term but not a solution if the disruption persists.

Oil prices in this scenario are likely to rise to a $80-100/bl range, also pulling the oil forward curve higher. Beyond inventory consumption, there are limited short-term supply responses available to make up such a shortfall. Whilst OPEC could increase quotas and promise to satisfy the market, most of its spare capacity would likely also be caught up in the disruption in the Strait of Hormuz.

In terms of natural gas, around 75-80 million tonnes per annum of LNG (around 20% of global LNG supply, predominantly from Qatar) transits the Strait of Hormuz, with Asia as its primary destination. A supply disruption here could be arguably more impactful than for crude oil, since there is no other option for these LNG volumes to bypass the Strait (leaving them effectively locked out of the market), and because natural gas inventories in Europe (the marginal consumer of global LNG) are currently at particularly low levels.

In Europe, despite winter coming to an end, there is a significant need to start the summer inventory refill process. Europe would need to compete for global LNG volumes (as it did in the aftermath of the Russian invasion of Ukraine) meaning that prices could be biassed sharply higher, potentially exceeding $20/mcf (thousand cubic feet). Asian consumers, especially in China, would likely curtail LNG demand at these prices and switch to cheaper, domestically produced coal for power generation.

Taking the bottom end of our $80-100/bl price range for this scenario: if energy equities reflected a long-term Brent oil price of $80/bl, we see around 30% equity price appreciation relative to pre-conflict valuations.

Scenario Three:

The conflict is protracted and becomes a wider war as other countries get involved. Iran is successful in shutting off a higher proportion of oil & gas supply through the Strait of Hormuz for a prolonged period.

In this scenario, Iran and its allies thwart US and Israeli efforts to force regime change, and a broader conflict ensues, both militarily and economically. Equity risk premia are likely to increase, and equity markets are likely to suffer as more countries become embroiled in the conflict, which drags on.

The effect on oil markets would be an amplified version of scenario two, with spot oil prices rising to $100/bl and above, ultimately leading to demand destruction. Forward oil prices rise in sympathy.

European and Asian gas prices are likely to behave similarly. The most recent analogy for European gas would be the Russian invasion of Ukraine, when gas prices spiked to around $40/mcf ($240 per barrel of oil equivalent) to balance the market: i.e. stifle demand and incentivise significant other supply. The loss of all LNG volumes through the Strait would be equivalent to around two-thirds of Russian pipeline gas volumes to Europe pre-invasion in 2021.

Global oil refining margins are likely suffer as a weakening global economy limits global oil product demand.

In this scenario, energy equities would likely be a safer haven in weaker global equity markets. For reference, if energy equities are priced at $100/bl as a long-term oil price, with equity risk premia unchanged, this implies around 90% equity upside.

Conclusion

The big questions concern the duration of the conflict and the extent to which oil and gas supply disruptions in the Strait of Hormuz persist. At 3.5m b/day, Iran is a material oil producer, and at 20m b/day, the Strait of Hormuz is by a distance the most important oil shipping lane in the world. Against these risks, we must weigh the fact that the global oil market was oversupplied in 2025 and that inventories are at comfortable levels.

Stepping back, the common thread in all three scenarios is that energy markets are likely to embed a more persistent geopolitical risk premium in oil and gas prices than was evident prior to the outbreak of current hostilities. In scenario one, that premium fades but does not disappear; in scenarios two and three, the premium extends. Energy equities have rallied but continue to trade at a discount to relatively conservative long-term commodity price assumptions.

The Guinness Global Energy Fund is entirely invested in oil and gas companies and is positioned to benefit directly from strength in those markets. Today’s portfolio is diversified across energy majors, mid-cap integrateds, exploration and production, services, refiners and midstream companies in North America, Europe and Asia.

Key themes in the Guinness Global Energy Fund

Source: Guinness Global Investors. Data as of 31.01.2026

To read the full report, click the link below, or click here to watch our special webcast recorded on Tuesday, 3rd March.

The value of this investment can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you invested.