Why the Strait of Hormuz Matters to Global Energy Markets

The Strait of Hormuz is one of the most strategically important energy transit routes in the world. Located between Oman and Iran, the narrow waterway connects the Persian Gulf to global shipping lanes and serves as a critical export route for oil and liquefied natural gas (LNG).

Approximately 20 million barrels of oil per day pass through the Strait of Hormuz, accounting for around one-fifth of global oil consumption. Significant volumes of LNG also travel through the strait, particularly from major producers such as Qatar.

Because of this concentration of supply, even the possibility of disruption can quickly drive volatility in global energy markets. Oil traders, gas markets, and electricity markets all react rapidly to geopolitical developments that threaten supply flows.

For Ireland, this matters because domestic electricity prices are closely linked to European gas markets. Gas-fired generation still plays a major role in electricity pricing across Europe, meaning that increases in global gas prices often translate into higher electricity costs for both households and businesses.

Early Market Reactions

The initial escalation of tensions has already had a visible impact on energy markets.

Oil prices rose sharply following the escalation of hostilities, while European gas prices also moved upward in response to potential supply risks. These movements demonstrate how sensitive energy markets are to geopolitical developments, particularly when major supply routes are involved.

Although markets can sometimes stabilise once immediate fears subside, the risk of sustained disruption remains an important factor shaping price expectations for the year ahead.

Scenario Analysis: What Could Happen Next?

To understand the potential impact on Irish energy costs, we analysed two broad scenarios based on different levels of disruption to global supply.

These scenarios are not predictions but rather illustrations of how energy markets could respond depending on how events develop.

Scenario 1: Short-Term Market Disruption

In the first scenario, disruption to global energy supply is limited and markets stabilise relatively quickly. While prices rise in the short term, supply chains remain largely intact and energy flows through the Strait of Hormuz resume without a prolonged interruption.

Even under this more moderate scenario, energy prices could still see meaningful increases.

Our modelling suggests the following potential peak prices during 2026:

Domestic Irish Energy Prices

• Electricity could peak at approximately €0.45 per kWh, representing an increase of roughly 24% above baseline projections.
• Gas prices could reach around €0.155 per kWh, an increase of approximately 46% above expected levels.

For the average Irish household, increases of this scale could translate into an additional €600 to €650 in annual energy costs, depending on consumption patterns.

Commercial Irish Energy Prices

For businesses, the projected impacts could include:

• Electricity prices peaking at around €0.33 per kWh, roughly 31% above baseline levels.
• Gas prices reaching approximately €0.12 per kWh, representing an increase of around 54% above expected levels.

Energy-intensive organisations could face tens of thousands of euro in additional annual costs under this scenario, particularly if elevated prices persist for several months.

While markets may stabilise later in the year, even temporary spikes can significantly affect operating costs and budget planning.

Scenario 2: Prolonged Conflict and Major Supply Disruption

A more severe scenario involves a prolonged disruption to energy flows through the Strait of Hormuz lasting several months.

In this case, global supply shortages could place sustained upward pressure on both oil and gas prices.

Our analysis suggests that under such conditions:

Domestic Energy Prices

• Electricity prices could reach approximately €0.57 per kWh, around 62% higher than baseline projections.
• Gas prices could climb to roughly €0.23 per kWh, representing an increase of around 130% above expected levels.

For Irish households, this scenario could increase annual energy costs by over €1,500.

Commercial Energy Prices

The impact on businesses could be even more significant:

• Electricity prices could reach €0.46 per kWh, approximately 88% above baseline projections.
• Gas prices could rise to around €0.195 per kWh, representing an increase of around 171% above expected levels.

Large energy users could face over €150,000 in additional annual energy costs, depending on their consumption levels.

Oil markets would also likely react strongly in this scenario, with Brent crude potentially reaching around $155 per barrel.

The Importance of Conflict Duration

One of the most important insights from this analysis is that the duration of disruption plays a larger role than the initial price spike.

Energy markets frequently respond quickly to geopolitical shocks, but prices often stabilise if supply chains remain intact.

However, if disruptions persist for several months, markets may struggle to rebalance supply and demand. In such circumstances, elevated energy prices could remain in place for extended periods – potentially continuing into 2027.

What This Means for Irish Businesses

For many organisations, energy is one of the most significant operational costs.

Periods of price volatility can therefore have a direct impact on profitability, operational planning, and long-term investment decisions.

Businesses that rely heavily on electricity or gas may face particularly strong pressure if prices remain elevated for several months.

However, organisations that have a clear understanding of their energy consumption are often better positioned to manage these challenges.

Energy efficiency improvements, operational optimisation, and strategic energy planning can all help reduce exposure to volatile energy markets.