M. Juan Szabo [1] y Luis A. Pacheco [2]
When the joint air forces of Israel and the United States attacked Iran and, among other objectives, succeeded in eliminating a significant number of its leaders —including Supreme Leader Ali Khamenei— a rapid collapse of the regime was expected. After all, only weeks earlier, the Iranian population had taken to the streets demanding political change and had been violently repressed, suggesting deep dissatisfaction with the theocratic regime.
However, to the surprise of many, including the White House, what was expected to be a limited-duration military operation has turned into a war with no foreseeable end. Following its initial retreat, the Tehran regime adopted a strategy based on responding to Israeli-American attacks with missiles and drones aimed at damaging neighboring countries, particularly those hosting U.S. military bases. This strategy was soon complemented by its most important element: using hydrocarbon supply as a weapon of war, extending the conflict’s impact to the global economy.
As of today, the conflict in the Middle East is beginning to generate an unprecedented global energy and geopolitical crisis, in which the Strait of Hormuz has become, for the White House, a modern version of the Greek myth of Scylla and Charybdis. Faced with this turn of events, President Trump has opted for a combination of escalation threats and optimistic statements about the duration of the conflict, in an attempt to mitigate the impact on oil prices; a strategy that already appears to be losing effectiveness. The sustained increase in oil prices reflects a deeper crisis.
Diplomatic Initiatives and Current Scenario
Attempts to find a diplomatic solution have so far been unsuccessful. Iran rejected U.S. demands with an equally extreme counterproposal, to which Washington responded with threats of a destructive campaign that would likely deepen the global economic crisis. Nevertheless, on March 31, Pakistan and China presented a joint five-point peace initiative —the first time a major power has formally proposed a path to end the conflict. Saudi Arabia and the United Arab Emirates are also engaged in unofficial talks.
Although navigability in the Strait of Hormuz has slightly improved —with 10 to 12 vessels transiting daily— the crude deficit remains high. Iraqi crude exports via Turkey, Saudi crude via the Yanbu terminal, and Emirati crude via the Fujairah terminal, combined with tankers that managed to bypass the strait, have reduced the deficit from 8 million barrels per day (MMbpd) to 6.5 MMbpd. Immediate physical availability of WTI has driven competition for those cargoes, reversing the traditional Brent differential —a phenomenon not seen since 2020.
No material increase has been observed among alternative producers, such as those in the United States. However, Baker Hughes reported a modest increase of 6 rigs operating in shale oil and natural gas basins. Monitoring this activity could become a short-term market indicator. Globally, a net reduction of 54 rigs was recorded, possibly in response to supply issues and the one-month lag in international data.
Geopolitical Fundamentals
Parallel with the War in Ukraine
As the war against Iran —now just over a month old— progresses, notable similarities are emerging with the four-year war resulting from Russia’s invasion of Ukraine. In conventional terms, Ukraine could not contain Russian advances due to its limited size and equipment, prompting it to develop a decentralized, iterative, and low-cost combat model. The backbone of this model is the massive use of locally manufactured drones, produced in small, geographically dispersed workshops that are difficult to detect and costly to destroy. This strategy not only halted Russian advances but also enabled territorial recovery and materially impacted Russia’s oil infrastructure, critical to financing its war. These attacks forced Moscow to impose a temporary ban on fuel exports due to domestic shortages.
Iran’s Strategy: Decentralization and Asymmetric Warfare
A similar pattern is unfolding in the Middle East. Despite the dismantling of its central government and the disabling of its conventional air and naval systems, Iran has decentralized command within the Revolutionary Guard and, leveraging an impressive inventory of missiles and drones, shifted from defense to offense. It has inflicted damage on military installations and industrial infrastructure across the region, even making good on its threat to close the Strait of Hormuz. The closure of this vital artery has reshaped the global energy landscape and forced several countries to adopt drastic measures to address current and future shortages.
Europe’s Position and NATO
President Donald Trump called on European countries to participate in forcibly reopening the strait, a request that was rejected despite Europe —along with Asian powers— being among the most affected regions. Europe’s reaction surprised no one: there is little appetite to become involved in the conflict, and there appears to be an opportunity to settle scores with the White House without fully weighing its own energy costs. Trump has threatened to withdraw from NATO, which would represent another collateral benefit for Russia stemming from this conflict.
Scenarios for the Strait of Hormuz
It is difficult to project what will happen in the coming weeks and months. Three possible scenarios are outlined:
- Short closure. Diplomatic or military progress leads to reopening the strait in May, aligning with U.S. estimates of the conflict’s end. Geopolitical risk would decrease, and prices would tend to normalize, though unlikely to return to pre-conflict levels.
- Gradual reopening. Non-belligerent but heavily affected countries—China, India, Japan, and Korea—pressure the parties, and traffic through the strait begins to normalize. Full navigation would resume by late June, but crude prices would remain above $80/BBL due to collateral damage and persistently high freight rates.
- Prolonged closure. Hostilities persist, and the U.S. decides to seize and control the strait militarily. Prices, due to reduced supply over nearly four months, would exceed $120/BBL and remain above $90/BBL even after reopening, given damage to Gulf production capacity and extreme regional instability. China, in particular, would not welcome U.S. control over its oil supply.
In any case, the only certainty is that this war could evolve into a permanent low-intensity conflict that destabilizes the energy market, making price levels difficult to determine and demand impacts hard to quantify. LNG supply, in particular, will be affected for a longer period due to damage to production infrastructure.
Alternative Routes and Gulf Capacity
Persian Gulf countries are maximizing capacities to bypass the Strait of Hormuz. Saudi Arabia has loaded around 5 MMbpd at its Yanbu terminal in the Red Sea. The UAE has utilized its Fujairah terminal in the Gulf of Oman, which has a capacity of nearly 2 MMbpd. Iraq continues exports via Turkey and is preparing to reactivate an old pipeline through Syria to export an additional 50 Mbpd via the Mediterranean. Long-term, a multinational project is being evaluated to route significant volumes through pipelines terminating in Haifa.
According to Tanker Trackers, since March 1, only 108 tankers have transited the strait—an average of 3 vessels per day. Iran has declared Iraqi tankers exempt from navigation restrictions, highlighting its intent to use the strait as a political instrument.
So far, global inventory—including floating storage—has declined by 2.5%.
Impact on the U.S. and Western Markets
Although the Western Hemisphere is well supplied with crude and natural gas—and is increasing exports to Asia and Europe—it is not immune to rising global prices, which affect domestic fuel prices —a highly sensitive political issue, particularly in the U.S.
Due to supply disparities, the historical Brent-WTI differential has inverted, with WTI now trading above Brent, driven by extreme demand for immediate U.S. crude. This “delivery capacity crisis” has created extreme backwardation, with buyers paying a premium for immediate delivery.
Price Dynamics
Oil prices were highly volatile during the week, with Brent fluctuating between $98 and $119/BBL.
By week’s end, prices surged again due to tensions between U.S. and European authorities and uncertainty following President Trump’s latest televised address.
Brent and WTI closed on Friday, March 27, 2026, at $109.03/BBL and $111.54/BBL, respectively, with Brent trending higher, particularly in Western Hemisphere markets.
U.S. Macroeconomic Outlook
A positive development was the creation of 178,000 jobs in March, with unemployment falling to 4.3%. Average hourly wages grew 3.5% year-on-year, while inflation was 2.4–2.7%, indicating real wage growth.
However, this positive outlook may soon reverse as the economic impact of the Iran conflict becomes evident in April and May data. Additionally, Federal Reserve policy could be affected: markets had anticipated rate cuts this summer, but current data cast doubt on that forecast.
In summary, higher inflation, recessionary pressures, increased energy investment, and realignment of defense spending are expected.
Eastern Mediterranean Exploration and Gas Developments
Despite ongoing events, the energy industry continues operating. ExxonMobil recently declared the Glaucus and Pegasus gas discoveries south of Cyprus commercial, with 7 TCF of recoverable resources. Together with ENI’s discoveries near Egypt and Chevron’s operations in Israeli waters, a major gas province is emerging, contributing to European and regional energy security.
Venezuela
Trump Rewards Delcy Rodríguez
During Holy Week in Venezuela, the Trump administration acted. On April 1, the U.S. Treasury removed Delcy Rodríguez from its sanctions list. This OFAC decision, along with the reopening of embassies and consulates, marks a significant shift in U.S. policy toward Venezuela.
It is unclear what the U.S. obtained in return: political prisoners remain jailed, and basic freedoms remain constrained. Adding to the ambiguity, Secretary of State Marco Rubio met with María Corina Machado in Washington, reaffirming her relevance.
Economy and Exchange Rate
Economic challenges persist: the official exchange rate exceeded Bs 470/$, with a 40% gap versus the parallel market, sustaining inflation above 600%.
V. Oil Operations
Crude Production
Production stabilized at 884 Mbpd:
· West: 242
· East: 110
· Orinoco Belt: 532
Joint Ventures (OFAC Licensed)
· Chevron: 242
· Repsol: 45
· M&P: 27
· Subtotal: 314 (35%)
Refining and Exports
· Refining: 240 Mbpd
· Gasoline: 75 Mbpd
· Diesel: 76 Mbpd
Exports averaged 770 Mbpd.
Export Destinations
· India: 340
· U.S.: 313
· Spain: 85
· Italy: 32
Export Blends
· Merey 16: 552
· Boscan: 114
· Hamaca: 68
· DCO: 36
Revenues
The Venezuelan basket reached $87.4/BBL. Monthly revenues totaled $1.956 billion.
[1] International Analyst
[2] Nonresident Fellow, Baker Institute
