In its ‘Global Commodities Outlook’, BMI – a Fitch Solutions Company – notes that fears of a prolonged disruption to shipping through the Strait of Hormuz are fuelling further volatility across commodities. If the conflict continues, the risks for oil and gas and aluminium prices, in particular, could rise significantly. The Strait of Hormuz is a critical chokepoint for global energy supplies, so any sustained blockage or military escalation can have outsized impacts on prices.
BMI also reports that the initial surge in precious metals, especially gold , has been tempered by the strengthening of the US dollar. Since gold is a non-yielding asset often seen as a safe haven during times of crisis, a stronger dollar can make it less attractive to investors, putting downward pressure on its price.
The company expects sharp but brief increases in oil and gas prices, followed by rapid declines as supply routes stabilise and the extra “risk premia”—the additional price paid due to perceived geopolitical risks—diminishes. In other words, as the immediate threat fades, so too does the added cost built into commodity prices.
However, BMI cautions that the overall risk to its price forecasts remains tilted to the upside, meaning that further escalation could send prices even higher than currently anticipated.
BMI observes that the energy markets are being affected unevenly by the ongoing conflict. European and Asian gas markets, as well as global distillates (such as diesel and jet fuel), are facing the most significant vulnerabilities, given their reliance on Middle Eastern energy exports.
Despite these pressures, the response in crude oil prices has been relatively contained. Brent, the international oil benchmark, rallied about 15% from pre-conflict levels to trade at $84 per barrel.
This price movement aligns with BMI’s baseline scenario, which anticipates Brent prices fluctuating between $75 and $90 per barrel in the coming weeks. A sharp sell-off is expected in the second quarter as markets shift their focus back to bearish fundamentals, such as ample supply and weaker demand.
BMI warns that the risk of escalation is still substantial. Regional oil and gas infrastructure remains vulnerable to attack, and shipping through the Strait of Hormuz could come to a complete standstill if the conflict intensifies.
“A large conflict-related risk premium had already been priced into Brent ahead of time, and loose physical market fundamentals, along with large storage buffers, are helping to cushion the initial blow.” Here, “risk premium” refers to the extra amount buyers are willing to pay due to uncertainty or the threat of supply disruptions.
“Crucially though, price action reflects the expectation that the conflict—and its associated supply-side disruptions—will be short-lived and that risk premia will fade rapidly once the conflict ends.”
Thus far, BMI notes, losses in crude production and export have mainly resulted from pre-emptive shutdowns of assets, risk-averse behaviour around the strait, and emerging storage bottlenecks. These factors are largely reversible if the security situation improves.
However, perceptions of risk—and the resulting price reactions—could change quickly if attacks on critical infrastructure escalate, leading to unplanned outages and longer repair times. More severe disruptions, such as Iran attempting to mine the Strait of Hormuz, would further compound these effects.
On a global scale, BMI explains that storage buffers are substantial, including strategic reserves, commercial inventories, and large amounts of oil stored on water (such as tankers at sea).
However, the capacity to store oil varies widely between countries. Larger economies may have enough reserves to cover several months of demand, while smaller nations with thinner buffers could run out within weeks if disruptions persist.
In response, several countries have already implemented export bans to prioritise domestic supply and prevent shortages.
With as much as 15 million barrels per day of regional supply at risk and limited spare production capacity outside the Gulf, BMI warns that physical market pressures could escalate rapidly if the conflict is prolonged.
To address this, the US has offered to escort and insure tankers passing through the strait, though BMI cautions that unless there is a significant de-escalation, such measures carry high risks and it is uncertain how quickly normal shipping could resume.
“However, absent a significant de-escalation in the conflict, this would be a high-risk move, and we question how soon flows could resume and at what level.”
Not all segments of the oil market are equally affected. Refined fuels like diesel and jet fuel are experiencing the greatest disruptions, as supply chains are especially tight.
BMI explains that middle distillate markets were already relatively tight before the conflict. Several factors are now contributing to these products (including diesel and jet fuel) outperforming in March.
This is partly because Gulf crude production is weighted towards medium and heavy sour crude grades, which yield more distillates. The temporary loss of access to these grades through the strait has reduced refiners’ ability to maximise diesel and jet fuel output.
In addition, Gulf refineries are designed to produce large volumes of middle distillates, and the region is a major exporter of these fuels.
The importance of Gulf distillate exports has grown since the Russia-Ukraine war, as Europe seeks alternative supplies to compensate for lost Russian volumes.
Furthermore, the Atlantic Basin is currently in its refinery maintenance season, which has taken a significant portion of refining capacity offline in Europe and North America. Combined with refinery run cuts in Asia due to trade disruptions, this has limited the supply response to sharply widening “crack spreads”—the difference between crude oil prices and refined product prices, which reflects profitability for refiners and has increased due to supply constraints.
Lastly, fuel markets—especially jet fuel—are difficult to rebalance quickly because of differing regulations, specific logistical needs, and rigid supply contracts.
NATURAL GAS
While oil markets have seen significant volatility, natural gas has also experienced pronounced effects from the conflict, particularly in Europe and Asia. BMI highlights that the Middle East conflict has had an outsized impact on natural gas markets over the past week. Net importers in Europe and Asia have seen prices soar since February 27 as concerns over supply disruptions mount.
BMI projects that if the war extends beyond the base case scenario of two to three weeks and tanker traffic through the Strait of Hormuz remains limited, European hub prices could stay above €40/MWh into the second quarter.
If the situation stabilises, however, BMI anticipates a decline in prices in the second quarter as risk premia recede—mirroring the expected trend in the oil market.
Recent data shows Dutch Title Transfer Facility (TTF) front-month gas prices rising by 54.4%, from €31.6/MWh on February 27 to €48.8/MWh, and UK National Balancing Point (NBP) prices climbing 61.4%, from £78.60 to £126.90 per therm in the same period.