Hormuz Closure, Ceasefire Extension Create Global Oil Market Volatility

The ongoing closure of the Strait of Hormuz is increasing the risk of a global recession as it destroys fuel demand, the world's top oil traders warned Tuesday. The vital channel has been largely closed to non-Iranian shipping since war began in late February, choking off hundreds of millions of barrels of supply, according to Rigzone.

At the FT Commodities Global Summit, Vitol Group CEO Russell Hardy stated the war has so far eliminated about 4 million barrels a day of demand, a figure that will rise if Hormuz stays shut. He warned of "recessionary consequences" from continued rationing of demand. Gunvor's head of research, Frederic Lasserre, said a three-month closure of the waterway could trigger a worldwide recession.

On Wednesday, US President Donald Trump unilaterally extended a cease-fire with Iran to allow its leadership time to formulate a unified peace proposal, OilPrice.com reported. However, Trump stated a US naval blockade of Iranian ports will remain in place. Tehran has said it will not resume negotiations as long as the blockade is in effect, which has led to the seizure of at least two ships.

The geopolitical turmoil has fueled price volatility. Benchmark oil futures rallied about 30% since the war began, spiking to almost $120 a barrel in early March before subsiding to near $95 on Tuesday, according to Rigzone.

For North Dakota, the full impact of the war on oil production and the state budget remains to be seen, state officials said Tuesday. Because the state's oil and gas data lags by two months, the most recent data from February does not yet reflect the wild price swings following the Strait of Hormuz closure, according to a Bing News report.

"This is largely dominated by the word volatility. That's the way I would describe pricing over the last 50 days," said Department of Mineral Resources Director Nathan Anderson during the monthly "Director's Cut" briefing on April 21.

In February, North Dakota wells produced 1.129 million barrels per day, slightly below the state's budget forecast of 1.15 million barrels per day. The state's revenue forecast was also short for February, as the budget was based on $59 per barrel and the actual price was $57.54. Anderson noted the price-related shortfall "should increase substantially" when March data is reviewed next month.

Despite the global price spike, drilling activity in North Dakota is not expected to change much in the near term. Anderson explained that operators finalized their 2026 budgets before the conflict broke out and have promised the market a certain level of capital spending and production. One operator has indicated it will add a rig in July, and another is considering it, while all others maintain a flat rig profile for 2026.

Justin Kringstad, director of the North Dakota Pipeline Authority, said the U.S. Energy Information Administration predicts a drop in oil prices below $80 per barrel once global dynamics stabilize, potentially in 2027.