Expert with consultant Wood-Mackenzie sees shutdown becoming «far more than an energy crisis,» as contractor McDermott International sees growth in regional infrastructure rebuilding
Long-term closure of the Strait of Hormuz due to the Iran-Israel-U.S. war is now “the greatest single risk» to both energy markets and the global economy, according to a new report from U.K.-based global energy consultant Wood Mackenzie. More than 11 million barrels per day of Persian Gulf oil and condensate production now is curtailed and over 80 million metric tons per year of liquefied natural gas, equivalent to about 20% of global supply, is «inaccessible” to global markets, it said.
The waterway “is the most critical chokepoint in global energy markets, and a prolonged closure would become far more than an energy crisis,” said Peter Martin, head of economics at Wood Mackenzie and a report author. “The longer disruption persists, the greater the impact on energy prices, industrial activity, trade flows and global economic growth.”
In the report released May 20, Wood Mackenzie has developed three “scenarios” in how the conflict could end and reopen the key waterway, with analysis of how each will impact oil and gas supply, demand and prices, as well as facility reconstruction, energy markets and country economies.
Under the most optimistic “quick peace” scenario in the Wood Mackenzie study, a workable peace agreement is reached in the near term, the strait reopens in June and the worldwide economy broadly returns to its pre-war status by the fourth quarter of this year.
Meanwhile, the consultant’s ‘summer settlement’ scenario assumes the ceasefire holds but negotiations extend into late summer, with Hormuz largely closed until September. Oil and LNG supply shortages persist through the third quarter, «driving a shallow global recession in the second half of 2026.
‘Economic Scarring’ If War Continues
But the report’s “extended disruption” outlook predicts “persistent tensions flaring into short-term conflicts,” with the strait closed through the end of this year, leading to a global recession and “economic scarring as shortages of key commodities and high prices erode demand,» Wood Mackenzie said. “Further damage to existing production facilities and infrastructure lengthens the recovery time of exports back to pre-war levels.”
Survey authors said energy-importing countries could move to cut oil and gas dependence through more aggressive electrification, as oil prices could inch toward $200 per barrel by year-end as inventories deplete and demand falls by 6%. «Full production restoration requires repairs and intensive intervention, and outages last beyond the end of the year.” said Wood Mackenzie. «Shut-in Gulf production reaches over 70% of pre-conflict levels before summer 2027.»
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Regarding LNG, the report said that even if peace is reached quickly, markets would remain tight through the summer of 2027 as Gulf export facilities gradually recover and construction delays slow regional supply growth—which were expected to increase by up to 200 million tons per year by 2031, about 50% above current levels, prior to the war. But, «the longer the conflict lasts, the greater the risk to future Gulf LNG supply,» Wood Mackenzie noted. «Unlike liquids, where producers such as Saudi Arabia have alternative export routes and will likely build more, gas will be much harder to reroute.”
The analysis envisions that the 60 million metric tons per year of capacity under construction experiences multi-year delays, while Qatar’s North Field West gas expansion project—approved earlier this year—possibly postponed indefinitely.
Persistent supply uncertainty would “accelerate efforts to diversify away from imported LNG, supporting coal resilience and faster growth in renewables and electrification across Asia and Europe.” said Massimo Di Odoardo, Wood Mackenzie vice president of gas and LNG research. “LNG prices would remain elevated through to 2030 supporting investments in new LNG outside the Gulf, but lower long-term demand would risk undermining the industry’s future perspectives.”
He said some countries in Europe and Asia dependent on imports for power generation «could invest in a quicker transition,» but rapid electrification requires massive investment in grid development, «with major cost implications.»
Efforts to meaningfully reduce reliance on gas for power supply would start after 2030 as coal-fired plant retirements are deferred and renewables, battery storage and grid modernization expand, Di Odoardo said, adding that the energy mix diversifies further after 2040 as nuclear power scales up rapidly.
According to Wood Mackenzie, an extended disruption scenario «delivers the global economy its greatest energy supply shock of the past 100 years,» although a possible recession later this year would be «less destructive» than the 2008 financial crisis or the COVID-19 pandemic. While the Middle East «suffers the largest shock in GDP terms,» said the consultant, domestic energy resources provide a buffer for the U.S. and China.
Regions seeking to build supply-chain hubs for clean technologies, such as the Middle East and North Africa, still face war-related challenges. The conflict has already delayed or cancelled more than 30 GW of planned solar module factories in those regions while battery storage shipments envisioned for 2026 have been cut by 25%.
While many alternative strategies could accelerate if the Strait of Hormuz remains closed, the war provides «arguably the toughest test yet for the resilience of oil and gas demand and governments’ motivation to pursue energy independence,» said Wood Mackenzie. «How the world responds to this test will determine the future of energy.»
Region Work Boosts McDermott Financials
Meanwhile, energy contractor McDermott International Ltd. anticipates growth from work in the Middle East despite impacts of the war, as it continues a pivot to high-margin offshore engineering-procurement-construction-installation tasks, primarily in oil and gas for clients such as state-owned Saudi Aramco, QatarEnergy and Abu Dhabi National Oil Co. The latter is set to accelerate construction work on a strategic pipeline project that would double its oil exports through the Red Sea, bypassing the Strait of Hormuz.
McDermott’s financial performance for its first quarter that ended March 31 exceeded expectations, it said May 20, with global revenue of $2.4 billion compared to analysts’ $1.9 billion estimate. The firm said it gained $1.4 billion in new awards, contributing to a total backlog of $17.6 billion, as well as adjusted net earnings of $117 million that exceeded the estimated figure of $99 million, «due to higher asset utilization and progress improvements,» the firm said, with CEO and board chair Michael McKelvy telling analysts that McDermott clients announced the «highest record level of [financial investment decisions] last year.
McDermott is eyeing a commercial pipeline worth $130 billion over the next two years, with about one-third of that in the Middle East, the firm said. «Our first-quarter performance exceeded our expectations, driven by strong project execution, improving backlog quality and continued operating discipline across the portfolio,» said McKelvy, «While we are closely monitoring developments in the Middle East and conditions remain fluid, our operations in the region continue. We remain focused on sustaining this momentum.»
According to McKelvy, the strait «has been an issue for us related to materials needed for fabrication in Dubai,» and related to projects in Africa, but noted «workarounds,» he told analysts. «We are fully utiized in our fabrication plants and vessels. For the last several weeks, it has been business as usual over there,» he added. «Offshore Middle East delivered a good quarter.» But McKelvy noted that the firm is stiil monitoring Impacts from Hormuz closures. «The world we live in remains dynamic,» he said..»We focus on leverage we can control.»
McDermott is optimistic that disruptions and delays due to the war will be temporary this year and still expects a successful 2026. This is despite millions of dollars in added project costs due to disrupted operations and delays such as in fabrication due to logistics and transportation impacts from the closure of the strait, despite mitigation measures put in place. Conversations with key clients like Saudi Aramco and Abu Dhabi Oil and Gas «focus on expediting current workloads,» said McKelvy. «We have the capacity to ramp up for additional projects, using yards in the Middle East and globally.»
McDermott expects adjusted EBITDA to rise 21% this year to about $520 million, and to $702 million by 2028, as it continues to restructure its balance sheet and refinance long term debt by next year.
