The closure of the Strait of Hormuz has sent shockwaves through global energy markets. With 20% of the world’s ready oil on the water at any given moment, and the majority of it passing through the Strait, the conflict in the Middle East has exposed just how thin the margin is between global supply and demand. For energy markets, the consequences will be felt for months and years to come.
Pete Bowden, Global Head of Industrial, Energy and Infrastructure Investment Banking at Jefferies, sat down at the firm’s annual Energy & Power Summit to give his assessment of the crisis and what it means for oil prices, M&A activity and the long-term shape of global energy supply.
A Supply Shock With Long-Term Consequences
Bowden was direct about the scale of the disruption. “Twenty percent of the world’s ready oil is water-borne at any moment in time,” he explained. “If we have a single vessel that is bombed or hits a mine, it’s going to shut down every insured crude carrier in the world.”
But the Strait of Hormuz is only part of the story. Major oil companies have evacuated personnel from the region, and Bowden argued that production delays will far outlast any immediate ceasefire. “They’re not going to move their employees back into the region at the first sign of peace — they’re going to want a long-standing, proof positive indication that their personnel are safe.”
The LNG market faces its own reckoning. Of the 20 million tons of LNG capacity taken offline, Bowden noted that 13 million tons will remain offline for years, not months. Damage to Qatar’s LNG complex alone is estimated to take four to five years to repair and that timeline will not begin until the region stabilizes.
The historical precedent is sobering. Before the Iraq War, the country produced six million barrels per day. Today it produces four million. “Some of this production is offline longer term than people expect,” Bowden observed.
Oil Prices: A New Floor
On pricing, Bowden offered a clear-eyed framework. In the immediate term, he believes $95 to $105 per barrel is appropriate given current conditions, with $120 oil possible if the conflict escalates further. But even in a scenario where tensions ease, he does not expect a return to pre-conflict pricing.
“If Iran were resolved and we went back to the previous state of affairs, $65 oil would be $80 oil,” he said. “That’s just the market preparing itself for the next shock. We have proven that things can change quickly, and once they do, there’s very little time to react.”
Longer term, Bowden’s base case is a $75 to $85 per barrel range, a meaningful re-rating of where the market will settle. “Every time there is geopolitical conflict, it’s a reminder that while energy is 8% of the economy, it’s the first 8%.”
The M&A Market: Active, With a New Anchor
Despite the volatility, Bowden reported that dealmaking has continued. The M&A market has coalesced around a WTI assumption of $75 to $80 per barrel: neither buyers pricing in a windfall nor sellers holding out for peak prices. “Geopolitical conflict is always a reminder of the essential nature of the commodity,” he said. “There is always a premium on domestic supply.”
E&P has been the most active vertical, but Bowden flagged acceleration in midstream and oilfield services as well. Offshore drilling is returning to markets like Brazil, driven by scarcity and a renewed willingness to take on larger, higher-capex projects.
On international M&A, Bowden sees growing interest, particularly from international players comfortable operating in higher-risk jurisdictions. U.S. companies, while primarily focused on domestic development, are also beginning to look outward.
America’s Relative Advantage… and Europe’s Problem
The United States enters this crisis from a position of relative strength. Domestic energy independence insulates the country from the worst of the supply shock, and healthy natural gas storage levels reduce the risk of a gas crisis. “I don’t believe that we will have shockingly high natural gas prices,” Bowden said. “We could very well have a crisis on the crude oil side.”
Europe, by contrast, faces a far more difficult situation. Already paying multiples of U.S. natural gas prices, the continent’s economy is growing at roughly 1% compared to 4% in the United States. “Make no mistake,” Bowden said, “affordable natural gas is a major driver of the economy in the United States… and the lack of affordable natural gas is a problem elsewhere.”
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The Middle East crisis has reordered assumptions across the energy sector: on pricing, on supply security, and on where capital will flow next. For Bowden, the lesson is one the global economy keeps being forced to relearn: energy security is the foundation on which everything else rests.
For more insights from Pete Bowden and Jefferies, the leading advisor on M&A transactions in the energy sector, visit the firm’s dedicated thought leadership site.
