Iran Strikes Gulf States as Strait of Hormuz Closure Reprices Global Energy Risk
Tehran's retaliatory campaign against US military assets across Saudi Arabia, UAE, and Bahrain marks first major offensive outside Iraq theater, sending Brent past $100 and forcing Gulf states to reassess decades of security doctrine.
Iran has launched coordinated missile and drone strikes across all six Gulf Cooperation Council states, directly targeting US military infrastructure and critical energy nodes in retaliation for US-Israeli attacks that killed Supreme Leader Ali Khamenei on 28 February. The offensive represents Tehran’s first sustained cross-border assault on Gulf soil since 1979, triggering an immediate market repricing of regional stability and energy security.
By 2 March, Iran had fired at least 165 ballistic missiles and 541 drones at the UAE, while another 97 missiles and 283 drones targeted Kuwait, according to defense ministry data compiled by Defense Security Monitor. The Islamic Revolutionary Guard Corps described the assault as its 37th wave of attacks, targeting a US base in Kuwait and multiple installations across the Gulf, per Al Jazeera.
Bahrain’s state oil company Bapco declared force majeure after its refinery caught fire in an Iranian attack, halting shipments from the kingdom’s primary energy complex. Qatar halted liquified natural gas production after strikes hit its Mesaieed and Ras Laffan facilities, while a projectile hit Saudi Arabia’s Ras Tanura refinery, the biggest domestic oil refinery operated by Saudi Aramco.
Strait Closure Triggers Historic Supply Disruption
The crisis has led to a near halt in tanker movements through the Strait of Hormuz, with nearly 20 million barrels per day of crude and product exports currently disrupted, according to the International Energy Agency. The war in the Middle East is creating the largest supply disruption in the history of the global oil market, with Gulf countries cutting total oil production by at least 10 million barrels per day as storage fills and export routes close.
Brent crude gained 9.22% to close at $100.46 per barrel on 12 March, the first time Brent closed above $100 since August 2022, reported CNBC. The rally came after Iran’s new supreme leader Mojtaba Khamenei vowed to keep the strait closed as a “tool of pressure,” according to NPR.
War-risk ship insurance premiums for the strait increased from 0.125% to between 0.2% and 0.4% of ship insurance value per transit in the days before strikes. By early March, war risk premiums had risen as high as 1 percent of the value of a ship, from about 0.2 percent the prior week, adding hundreds of thousands of dollars per voyage, per Al Jazeera. For a tanker worth $100 million, the war-risk premium for a single voyage jumped from roughly $200,000 to about $1 million.
Military Calculus and Defense Spending Acceleration
Seven US soldiers have died and eight were seriously injured, mainly after attacks at US bases in countries neighboring Iran, the Pentagon confirmed to NPR. The US naval base in Bahrain appears to have taken extensive damage following several days of Iranian missiles and drone attacks, with Iran striking the headquarters of US Naval Forces Central Command at Naval Support Activity Bahrain, according to Stars and Stripes.
The strikes mark the first time since the 1981 formation of the Gulf Cooperation Council that all six member states have been simultaneously targeted in a single escalation cycle. The GCC Joint Defense Agreement of 2000 stipulates that an attack on one member is an attack on all, though experts note the pact lacks automatic enforcement mechanisms for coordinated military response.
Military spending across the GCC will almost certainly surge as governments reassess their security assumptions, with the war exposing both the limits of US protection and the vulnerability of advanced infrastructure to relatively inexpensive weaponry, according to analysis by the Middle East Council on Global Affairs. Saudi Arabia, the region’s largest defense spender, allocated approximately $69.1 billion to the military sector in 2025, keeping defense among the largest items in its national budget.
Despite decades of heavy Defense Spending, Gulf states remain highly exposed to missile and drone warfare, with air defense systems able to intercept but not at scale or at low cost, and saturation attacks remaining a serious concern, defense analyst Ali Bakir told Breaking Defense.
Market Repricing and Emergency Response
IEA member countries agreed to release 400 million barrels of oil from their emergency reserves, with the US announcing it would release 172 million barrels from its Strategic Petroleum Reserve as part of that effort. The record IEA stock release will add needed volumes to the market, but will only close up to a quarter of the supply gap triggered by the closure of the Strait, per CNBC.
| Country | Facility Hit | Operational Impact |
|---|---|---|
| Bahrain | Bapco Refinery | Force majeure declared |
| Qatar | Mesaieed/Ras Laffan LNG | Production halted |
| Saudi Arabia | Ras Tanura refinery | Fire, output curtailed |
| UAE | Ruwais Industrial Complex | 922,000 bpd offline |
The US Energy Information Administration now forecasts Brent crude to average $79 per barrel in 2026—a sharp increase from its previous forecast of $58—and $64 in 2027 versus the earlier $53 forecast, reported OilPrice.com. The revisions assume the Middle East conflict proves temporary and tanker traffic gradually resumes.
Brent oil prices could surge to $135 per barrel if the current situation lasts four months, with prices rising above $110 if conditions persist for two months, Rystad Energy warned in analysis shared with CNBC.
What to Watch
US Military counterresponse calculus now centers on whether to provide naval escorts through the Strait—a decision that would formalize direct confrontation with Iranian forces. The Development Finance Corporation announced a $20 billion reinsurance facility in partnership with Chubb to backstop shipping insurance, though coverage excludes environmental liability from potential tanker spills.
Gulf states face a strategic inflection point: For decades, one core objective of Gulf security doctrine was to prevent direct entanglement in a US-Iran war, with billions spent on advanced weaponry and strategic hedging aimed at keeping the flames of war away from Gulf soil—that doctrine is no longer tenable. The question is whether GCC members activate collective defense mechanisms or pursue individual accommodations with Tehran.
Energy markets are pricing in a persistent supply risk premium of $18 per barrel, per Goldman Sachs estimates. The durability of that premium depends on three variables: duration of Strait closure, scale of Gulf production shut-ins (currently at 10 million barrels per day and rising), and effectiveness of US-led efforts to reopen maritime lanes. Every week the Strait remains effectively closed erodes the cushion provided by strategic reserve releases and accelerates the timeline toward $120+ crude.