Energy markets offer ‘relatively small reaction’ to Iran war, but prices could spike if oil and gas aren’t flowing by the end of the week

The U.S. and Israel attacked Iran, killing its supreme leader and launching a regional war as Iran and its proxies retaliated against its neighbors, but crude oil prices spiked by only a relatively muted 6% on March 2.

With the Strait of Hormuz—the world’s biggest choke point for oil and gas flows—essentially shut down because of the violence, prices could surge much higher if oil flows haven’t resumed by the end of the week or shortly thereafter, energy analysts said.

“The Strait of Hormuz is essentially closed, and yet prices are only up a little bit,” said oil forecaster Dan Pickering, founder of the Pickering Energy Partners consulting and research firm, admitting he expected greater market movement.

“The oil price reaction is telling us that, so far, this is contained,” Pickering said. “The expectation is the U.S. will do something to open, and keep open, the strait so oil can flow.”

The narrow, 104-mile strait is the main choke point separating the Persian Gulf—and the daily flow of nearly 20 million barrels of oil—from the Indian Ocean and global energy markets. Nearly 20% of global oil and natural gas exports flow through the strait each day—until now. Saudi Arabia, Iraq, Iran, Kuwait, Qatar, and the United Arab Emirates all depend on the waterway for their exports.

While oil and gas exports aren’t formally blocked, some tankers have been damaged, and more third-party insurers are refusing to insure the tankers tha...