Citigroup analysts predict that Brent crude prices could surge to approximately $90 a barrel if the crucial Strait of Hormuz were to be closed. However, the bank also anticipates that any such disruption to shipping through the vital waterway would likely be short-lived.

The Impact of a Potential Closure

In a recent note, analysts including Anthony Yuen and Eric Lee outlined Citigroup's "bullish case scenario," stating, "Any closure of the Strait could lead to a sharp price spike." Despite this potential surge, they added a crucial caveat: "But we think the duration should be short, as all efforts would focus on a reopening, so that it should not be a multi-month closure.”

The Strait of Hormuz is a strategically significant and narrow waterway located at the entrance to the Persian Gulf. Approximately one-fifth of the world’s daily oil output transits through this strait, including substantial volumes from major OPEC producers like Saudi Arabia and Iraq. Citigroup's projection of a price spike implies a disruption of roughly 3 million barrels per day over a period of several months, should a prolonged closure occur.

Iranian Exports: A Mitigating Factor?

Interestingly, Citigroup also suggested that any disruption to Iranian crude exports might have a smaller impact on prices than anticipated. The bank noted that Iran's oil shipments have already been declining, and Chinese refineries, a major buyer, have been reducing their purchases. This existing reduction in Iranian supply could potentially temper the overall price reaction to a Strait closure.

Currently, Brent futures are trading at around $77 a barrel, highlighting the significant potential upside if the Strait of Hormuz, a critical chokepoint for global oil supply, were to experience an interruption.