The Long Shadow of the Iran Shock: Hormuz and the New Geography of Energy Power

Foreign Affairs | BY Guy D. McCardle

Tehran’s closure of the Strait of Hormuz in February 2026 disrupted roughly one-fifth of global oil and liquefied natural gas flows, triggering major energy market shifts worldwide. Despite fears of $200 crude, Brent crude averaged just over $100 per barrel due to pre-existing market oversupply, Saudi and Emirati bypass pipelines moving over five million barrels per day, and a record emergency release coordinated by the International Energy Agency.

China further stabilized global balances by reducing imports by five million barrels per day through June and deploying commercial inventories, while the United States leveraged surging production to become a net crude exporter for the first time since World War II. However, five months of sustained market stress have severely depleted strategic reserves, elevated refined product prices like diesel, and doubled European natural gas benchmarks to $70 per megawatt-hour. As alternative supply routes face rising vulnerabilities, a second phase of the Hormuz crisis threatens significantly higher economic damage.

Comment

Bypassing the Strait of Hormuz via overland infrastructure exposes structural limits in global energy sustainment. Saudi Aramco's East-West Pipeline and the Habshan-Fujairah pipeline successfully redirected five million barrels per day during the crisis, but both systems operated at their absolute engineering limits. Overland transit offers immediate crisis dampening, but concentrates energy sustainment onto fixed pipeline routes terminating at vulnerable Red Sea facilities like Yanbu.

This throughput ceiling creates severe downstream sustainment friction when crude displacement transfers to regional refining hubs. Processing facilities along the Red Sea lack the hydrocracking capacity required to process substitute crude grades without generating critical diesel shortages across European and Asian markets. Coordinated stock releases by the International Energy Agency mitigate initial crude shortfalls, but cannot restore lost middle distillate production once Fujairah and Yanbu terminal infrastructure operates at full capacity.

Strategic Question for Discussion

Which factor poses a greater vulnerability to long-term energy sustainment during a prolonged Hormuz blockade — the physical throughput limits of bypass systems like the East-West Pipeline, or the downstream hydrocracking deficits of Red Sea refining hubs?

The available evidence points toward downstream hydrocracking capacity as the more critical vulnerability during extended maritime blockades. While overland routes like Saudi Aramco's East-West Pipeline can sustain raw crude volume to Red Sea terminals, secondary refining constraints rapidly generate acute regional deficits in diesel and jet fuel. This structural imbalance exposes importing economies to severe supply chain disruptions long before primary crude stocks are fully exhausted.

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