A Thin Strip Of Water Keeps The World Economy On Edge: Will It Trigger A $100 Oil Shock? – United States Oil Fund (ARCA:USO)

The strategic chokepoint of the Strait of Hormuz — the maritime artery through which nearly 20% of global oil flows — is back on the radar of Wall Street research desks, as analysts asses the risk of a crude supply shock following Israel’s latest strikes on Iran’s nuclear infrastructure.

Squeezed between Iran and Oman, this thin strip of water narrows to just two shipping lanes of only 2 nautical miles each, leaving global oil flows dangerously exposed.

With the Israel-Iran standoff intensifying, the Strait of Hormuz is becoming a major worry for investors and the global economy.

Oil Spiking Above $100 Still A Tail Risk, But Rising In Probability

Following the 12% weekly jump in oil prices – as tracked by the United States Oil Fund USO – Goldman Sachs has increased its near-term geopolitical risk premium.

In a note shared Friday, commodity analyst Daan Struyven estimated that if Iranian oil infrastructure is damaged and 1.75 million barrels per day are knocked offline for six months, Brent could briefly spike above $90.

A broader regional escalation that impacts the Strait of Hormuz, however, could push oil above $100 in what Goldman Sachs describes as a “tail risk but non-negligible” scenario.

“Almost a third of global seaborne oil trade moves through the Strait of Hormuz. While some portion of oil flows could be diverted to avoid the Strait, it still leaves roughly 14m b/d of oil supply at risk,” said ING commodity analyst Warren Patterson.

“A significant disruption would be enough to push Brent to $120 per barrel,” he added.

Read also: The $120 Oil Shock Just Became A Real Risk: Are We Back In 2022?

Patterson also noted that global LNG markets would be squeezed, as Qatar — which supplies 20% of the world’s liquefied natural gas — depends entirely on this chokepoint, with no viable alternate routes.

According to Kristian Kerr, head of macro strategy at LPL Financial, the market is closely watching how Iran might retaliate, particularly through its proxies.

“The primary market concern lies with Iran potentially closing the Strait of Hormuz, a critical chokepoint for global oil and gas,” Kerr said.

“We think that’s unlikely for now, given Iran’s need to maintain oil sales to China.”

Kerr added that $80 per barrel is an important psychological threshold. A break above that level could trigger broader volatility across equity and credit markets.

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