If war breaks out between the US and Iran—an increasingly likely outcome—I have no doubt that Iran will close the Strait of Hormuz.
To call that a severe oil supply disruption would be a major understatement.
Consider this…
During the first oil shock in 1973, about 5 million barrels were removed from the global oil market. Daily global oil production was approximately 56 million barrels per day at the time, which means about 9% of the supply vanished.
Oil prices roughly quadrupled.
During the second oil shock in 1979, about 4 million barrels were removed from the global oil market. Daily global oil production was approximately 67 million barrels per day at the time, which means about 6% of the supply vanished.
Oil prices nearly tripled.
During the third oil shock in 1990, about 4.3 million barrels were removed from the global oil market. Daily global oil production was approximately 66 million barrels per day at the time, which means about 7% of the supply vanished.
Oil prices more than doubled.
If Iran were to shut down the Strait of Hormuz, it would remove a whopping 21 million barrels of oil from the global market. Today, global oil production is around 96 million barrels per day, which means about 22% of the worldwide oil supply could disappear.
As we can see in the chart below, it would be the largest oil supply shock the world has ever seen… by far.
https://financialunderground.com/articles/one-step-from-the-biggest-oil-shock-in-history/
If war with Iran proceeds and Tehran closes the Strait of Hormuz, I think the effect on the price of oil will be at least as severe as it was during the 1973 oil shock, which saw oil prices go up 4x.
A similar move today could see oil prices around $300 a barrel.
However, I consider that a conservative estimate because closing the Strait of Hormuz would cause a much larger supply shock than the 1973 OPEC oil embargo.
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