Oil Markets Face Historic Disruption as Strait of Hormuz Crisis Deepens

Chevron Chairman and CEO Mike Wirth said on Monday that physical shortages in oil supply would begin appearing around the world because of the closure of the Strait of Hormuz, through which 20% of global crude supply passes , delivering one of the starkest warnings yet about the energy crisis gripping global markets.

Economies will begin shrinking, first in Asia, as demand adjusts to reduced supply with the strait still closed because of the U.S.-Israeli war with Iran, Wirth said during a discussion sponsored by the Milken Institute. "We will start to see physical shortages," Wirth said, noting that surplus supply in commercial markets, tankers in so-called shadow fleets avoiding sanctions, and national strategic reserves were being absorbed . The overall effect of the Hormuz closure is "potentially as big as in the 1970s," Wirth said .

The warning comes as international benchmark Brent crude futures rose nearly 6% to close at $114.44 per barrel, while U.S. West Texas Intermediate futures advanced more than 4% to settle at $106.42 per barrel on Monday, according to CNBC. According to market data, WTI crude traded at $71.50 per barrel as of Friday's close, though prices have surged dramatically in recent trading sessions.

U.S. Military Operation Escalates Tensions

President Donald Trump on Sunday night announced "Project Freedom," an attempt by the U.S. to "free" ships that have been stranded as a result of Iran's de facto blockade of the Strait of Hormuz. CENTCOM later said U.S. Navy guided-missile destroyers are "currently operating in the Arabian Gulf after transiting the Strait of Hormuz in support of Project Freedom" , according to CNBC.

The U.S. military said it fired on Iranian forces and sank six small boats targeting civilian ships as it moved to reopen the Strait of Hormuz on Monday , NPR reported. US forces will be attacked if they enter the strait, and commercial ships and oil tankers should refrain from moving unless they coordinate with Iran, Ali Abdollahi, the head of the Iranian military's unified command, said in a statement on Monday , according to Al Jazeera.

Shipping traffic through the Strait of Hormuz, a major maritime choke point for world energy trade, has been largely blocked by Iran since 28 February 2026, when the United States and Israel launched an air war against Iran and assassinated its supreme leader Ali Khamenei , according to Wikipedia's documentation of the crisis.

UAE Breaks From OPEC, Accelerates Investment

In a major shift for global oil markets, the United Arab Emirates has announced its decision to quit OPEC and OPEC+ to focus on "national interests", dealing a heavy blow to the oil-exporting groups at a time when the US-Israel war on Iran has caused a historic energy shock and rattled the global economy. The move, which will take effect on Friday, reflects "the UAE's long-term strategic and economic vision and evolving energy profile," a statement carried by state media said on Tuesday , Al Jazeera reported.

Days after the UAE's May 1 exit from OPEC, ADNOC Group announced the $55-billion investment on Sunday during the inaugural Make it With ADNOC Forum, which "provided greater visibility into ADNOC's project pipeline, and unlocked a wealth of manufacturing opportunities" , according to OilPrice.com. The $55-billion investment is part of the huge $150-billion capital plan for 2026–2030 approved in November 2025. So, it's not new, but it is accelerated by the company now that the UAE is not bound by any production quotas .

But with the Strait of Hormuz still closed and oil and gas flows unable to leave the Middle East, the UAE – like the OPEC+ Gulf producers – cannot accelerate production in the short term. Short term, no producer in the Gulf is in a position to raise output until the Strait of Hormuz remains closed , OilPrice.com noted.

U.S. Shale Responds to Price Rally

American producers are moving quickly to capitalize on the price surge. Diamondback Energy announced it is increasing annual oil production guidance to 520+ (from 500 - 510) MBO/d and total BOE production to 972+ (from 926 - 962) MBOE/d; implying ~5% organic year-over-year growth , according to the company's earnings release on Monday.

Since our last stockholder letter just 70 days ago, the oil market has completely flipped from a projected supply-demand surplus to a historic global deficit. We have made the decision to begin to work down our drilled but uncompleted well ("DUC") balance to maintain our current production level of over 520,000 Bo/d - up 3% from our original 2026 guidance , Diamondback CEO wrote in a letter to shareholders.

Reuters reported that U.S. shale producer Diamondback Energy raised its annual production forecast on Monday, after beating Wall Street expectations for first-quarter profit on a rally in oil prices .

Big Oil Profits Masked by Hedging Losses

Despite soaring oil prices, the largest U.S. oil companies reported declining first-quarter earnings due to financial hedging strategies that backfired when prices spiked. The two biggest U.S. oil companies reported profits on Friday that fell dramatically compared with the same period last year. Exxon's net income declined 45%, while Chevron's tumbled 36% , CNBC reported.

Crude prices were depressed during the first two months of the year as the market anticipated a surplus, but suddenly spiked after the U.S. and Israel attacked Iran on Feb. 28. Prices have surged 57% as the war has caused the largest oil supply disruption in history .

However, analysts expect both companies' profits to soar the rest of the year. Ahead of the companies' early Friday earnings reports, the consensus estimate from analysts was for ExxonMobil's second-quarter earnings to more than double from a year ago and for full-year earnings to climb 46%. Chevron profits are expected to more than triple in the current quarter and increase 56% for the year , CNN reported.

Market Outlook Remains Uncertain

The energy crisis shows no signs of abating. While repeatedly saying he is in no hurry, Trump is under domestic pressure to break Iran's hold on the strait, which has choked off 20% of the world's oil and gas supplies and pushed up U.S. gasoline prices , according to CNBC reporting on May 2.

Asia is most heavily dependent on the Gulf's oil production and refineries, with Europe likely to be affected next, Wirth said . Wirth noted that the United States, a net exporter of crude, would be less affected than other parts of the globe, but eventually the effects would be felt there as well .

The crisis has already claimed casualties in the aviation sector. Because of the Hormuz closure, Spirit Airlines went out of business over the weekend as the cost of jet fuel surged amid tighter supplies , according to Reuters.

With negotiations between the U.S. and Iran stalled and military tensions escalating in the Strait of Hormuz, the global energy market faces its most severe test in decades. Whether producers outside the Gulf can ramp up output fast enough to offset the disruption—and whether the fragile ceasefire holds—will determine the trajectory of oil prices and economic growth for the remainder of 2026.