Hormuz's 'oil' & 'fire': A geopolitical shock that could detonate the global commodity chain

Editor's note: Liu Xu is an executive director at the Center for International Energy and Environment Strategy Studies, Renmin University of China. The article reflects the author's opinions and not necessarily the views of CGTN.

On February 28, 2026, as the United States and Israel jointly launched a military action codenamed "Epic Fury" on Iran, the Middle East – the core of global energy – was once again ignited by war. This is not a short-term geopolitical friction. Iran's response was equally decisive – it launched "Operation True Promise 4" and quickly imposed a de facto blockade of the Strait of Hormuz. This series of actions not only cut off the "main artery" of global energy supply, but also struck a blow at the global commodity market, which could quickly spread from the energy sector to every corner of the economy, reshaping the global economic and financial structure.

The comprehensive supply shock from Kharg Island to Hormuz

The military strike has dealt a heavy blow to Iran's domestic energy export capacity. Although Iran is a global energy power, its crude oil export structure has a fatal flaw—it is extremely dependent on the terminal of Kharg Island in the Gulf. The island handles about 90 percent of Iran's crude oil exports and is a veritable "money bag". 

Although Iran urgently loaded its crude oil stocks on ships on the eve of the attack in an attempt to avoid risks, the outbreak of military conflict itself means that the facility has become a high-risk target. If Kharg Island suffers substantial damage or is shut down for a long time, Iranian crude oil exports of about 3 million barrels per day will be instantly frozen. 

The "de facto blockade" of the Strait of Hormuz is the most devastating factor in this crisis. Since the Iranian Revolutionary Guard Corps has announced through radio broadcasts that "no ship shall pass", many oil giants and traders around the world have suspended passage and oil tankers have stopped sailing in or around the strait. 

The global strategic position of the Strait of Hormuz is irreplaceable. About 20 million barrels of crude oil and refined products per day (accounting for 30 percent of global seaborne oil trade and about one-fifth of total global consumption) pass through here. Qatar, the world's largest LNG exporter, uses the strait for all its LNG exports, which account for more than 20 percent of global LNG trade. More than 90 percent of Gulf oil-producing countries such as Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait rely on this waterway for their exports. 

To make matters worse, the capacity of alternative routes is extremely limited. The combined capacity of Saudi Arabia's East-West pipeline and the UAE's Fujairah pipeline is only about 6.8 million barrels per day, and it is not idle at full capacity, which cannot make up for the gap of nearly 20 million barrels per day. This means that as long as the blockade continues, nearly a third of the world's offshore oil supply and one-fifth of LNG trade will come to a standstill. This is not a simple "interruption of Iranian exports", but a "suffocation" of energy exports throughout the Gulf region.

Panic revaluation of crude oil and LNG markets

The crude oil market is facing an unprecedented "war pricing". Before the attack, Brent crude oil prices had climbed to about $73 per barrel due to tensions. Depending on the duration of the lockdown, oil prices will show a clear step-by-step jump. If international mediation takes effect quickly, the United States and Israel suspend the strike, and the blockade ends as a means of demonstration, oil prices may rise to above $120 and then fall back. But it depends on market expectations for the "next crisis." If the conflict continues, the blockade can continue to be enforced by various means, and the market may determine that the supply crisis is real. In such a scenario, Brent crude oil could even hit $150 per barrel, making global inflation expectations explode instantly. And if the United States insists on achieving regime change, and Iran weighs "existential crisis" over collateral damage, it is not impossible for oil prices to break through $150 or even challenge the historical high of $200. This would recreate or even surpass the oil crisis of the 1970s.

In such a situation, the LNG market could be caught in a "rush war between Asia and Europe". The blockage of Qatar's LNG exports will directly impact the highly price-sensitive Asian market and the European market, which urgently needs replenishment. Since there is no global LNG channel that can quickly replace Qatar's supply, buyers will be forced to compete in the spot market for LNG cargo available on every vessel, especially the spot supply in the United States. This panic purchase will lead to a similar surge in gas prices as in 2022.

Transmission to the global economy and other commodities

Energy is the blood of the economy, and the surge in oil and gas prices will quickly spread to every corner of the global economy through the industrial chain and trigger a sharp revaluation of financial markets.

The global economy faces the risk of "stagflation." It is generally believed that for every $10 per barrel increase in oil prices, the global average inflation rate will rise by about 0.5 to 0.7 percentage points. If oil prices remain above $100 for a long time, global inflation will completely shift from "temporary" to "structural." This will completely disrupt the monetary policy rhythm of the world's major central banks. Central banks such as the Federal Reserve and the European Central Bank, which are already preparing to start a rate cut cycle, will be forced to pivot urgently, delaying interest rate cuts or even restarting interest rate hikes to curb inflation. The combination of tightening global liquidity and high energy costs will seriously suppress economic growth and plunge the global economy into a quagmire of "high inflation and low growth."

Rising energy prices have directly pushed up the cost of irrigation, harvesting, and transportation for agricultural production. The agricultural product market will usher in a wave of "cost-driven" price increases. The Strait of Hormuz is also a key channel for global fertilizer transport, especially ammonia and urea, accounting for about 25 percent-35 percent of global trade. Iran itself is also an important exporter of methanol. The blockade will cut off exports of key fertilizer raw materials, leading to tighter global fertilizer supplies and soaring prices. The surge in costs will eventually be transmitted to food prices, especially wheat, corn and soybeans, which are highly dependent on chemical fertilizers. Historical data shows that after crude oil prices have risen sharply, wheat and soybean oil therefore tend to be the varieties that rise the most in the agricultural market.

As the ultimate safe-haven asset, gold prices were at historic highs before the conflict. As conflicts erupt and inflation expectations soar, more money will flow out of the stock market and bond market to gold to preserve value. Although the safe-haven nature of the US dollar will strengthen in the short term due to the return of funds, the US inflationary pressure and hedge funds' preference for gold will jointly push up the price of gold. The "financial attributes" and "safe-haven attributes" of gold overlap perfectly at this moment. Silver has both safe-haven and industrial attributes. On the one hand, it will rise with the safe-haven logic of gold; on the other hand, if the global industry declines, its industrial demand (for electronics, solar energy) may weaken, causing its volatility to far exceed that of gold. Silver has had a strong rally over the past few months, and the conflict could cause it to move "explosively" at highs.

When the "oil" road in the Strait of Hormuz is cut off, the "fire" ignited is not only the fire of war, but also the fire of global inflation, the fire of risk aversion, and the fire of supply chain breakage. In this storm, all commodities, from crude oil and LNG to agricultural products and precious metals, may been caught in a huge price revaluation vortex. The lessons of history tell us that once such a cycle is formed, its ripple effect will last for years.

(Cover via VCG)