By Adam Rozencwajg, co-founder and managing partner at Goehring & Rozencwajg
The sudden closure of the Strait of Hormuz has triggered one of the most significant supply disruptions in the history of global energy markets. With roughly one-fifth of the world’s oil flows affected, the implications extend well beyond near-term price volatility.
The outbreak of hostilities in the Persian Gulf has already reverberated through global oil markets with remarkable speed. At time of writing, the Straits of Hormuz remain effectively closed, disrupting the transport of roughly 20% of global oil production and a similar share of seaborne LNG supply. In absolute terms, this represents approximately 20 million barrels per day of crude oil and about 10 billion cubic feet per day of liquefied natural gas.
By the metric that ultimately matters most to energy markets – daily physical volume – the disruption may already rank as the largest shock the industry has ever experienced. The consequences have been immediate: refiners around the world have begun scrambling for alternative crude supplies, often at sharply higher prices.
While much will depend on how events evolve in the coming days, the implications are likely to extend well beyond the immediate crisis. Over the medium term, the extent of damage to the region’s energy infrastructure remains uncertain. Thus far, the US and Israel appear to have avoided direct attacks on Iran’s oil facilities, presumably to preserve the possibility of post-conflict economic recovery. Iran, by contrast, has reportedly targeted storage tanks, pipelines, and refining assets in Qatar, the UAE, and elsewhere in the region.
The apparent logic behind these strikes is straightforward: by inflicting maximum disruption on oil markets, Iran may hope to place political pressure on the US and Israel as energy prices rise.
An overlooked asset
The turmoil has unfolded against a striking backdrop. At the beginning of 2026, crude oil was arguably the most disfavoured major asset class in global markets. Energy equities accounted for only about 3% of the S&P 500’s market capitalisation – barely above their pandemic-era lows. Oil itself traded at record lows relative to gold and close to historic lows in inflation-adjusted terms. Among speculative traders, the dominant strategy had increasingly been to bet against the commodity. Net speculative positioning in WTI futures on the NYMEX exchange began the year at its most bearish level in 15 years, and gross short positions had risen to their highest levels since 2016.
Much of this pessimism stemmed from the International Energy Agency’s (IEA) persistent narrative that the world was facing what it described as the largest oil surplus in history. However, whether this reflects reality is debatable. According to the IEA, global oil production exceeded demand by 2.2 million barrels per day in 2025, with the surplus expanding to roughly 3.0 million barrels per day during the fourth quarter. If those figures were correct, global inventories should have surged. In practice, they barely budged which suggests the oil market may be tighter than commonly believed.
See also: Van Lanschot Kempen’s Plouvier: Navigating value investing amid turmoil
Against this backdrop – an already tight market, record-bearish speculative positioning, and now the closure of the Straits of Hormuz – short covering has been intense. It’s likely that a substantial portion of the surge toward $120 per barrel reflected margin calls and the forced liquidation of speculative short positions.
Several recent reports have described hedge funds shutting down their energy trading desks entirely, while large physical trading houses have reportedly raised tens of billions of dollars to reinforce their margin reserves and working capital. It is difficult to imagine a firm dismantling its energy trading operation at such a moment unless its positions had been severely wrong-footed.
Oil back in focus
The most important long-term consequence of recent events may simply be investors are forced to look at oil again, a market which has largely ignored. The shale boom provided an enormous buffer of production growth during the past decade, but growth is now slowing and, in many regions, turning negative. Meanwhile, an entire generation of market participants has grown accustomed to approaching oil from the short side. Genuine oil bulls have become a rarity.
For years, the prevailing view has been the oil industry belongs to a bygone era and represents, in effect, a barbarous relic of the industrial past. Recent events have undoubtedly challenged this perception. Within the energy complex, compelling opportunities are emerging, not just within oil but across other sub-sectors, including US natural gas and uranium. By contrast, other commodities such as gold appears less compelling in the current environment, while copper remains more exposed to the short- to medium-term cyclical outlook.
The Hormuz shock and ensuing consequences should serve as a reminder the oil market, however unfashionable it may sometimes appear, remains one of the most consequential markets in the world and one investors ignore at their own peril.
