Aftershocks: Energy security beyond the Strait of Hormuz crisis

Aftershocks: Energy security beyond the Strait of Hormuz crisis

(55 pages)

At a glance

• The ongoing Strait of Hormuz disruption is the latest—and largest—energy supply disruption. It may not be the last. Two-thirds of energy trade transits maritime chokepoints, and one-third crosses geopolitical lines. Ninety-five percent of people live in a region dependent on energy imports.
• The energy system has so far proven more resilient than expected. This is due mostly to temporary buffers and bypass pipelines for oil. Trade has rewired globally as China curtailed imports and the United States released inventories. The global economy has in many ways accommodated a drop in oil consumption—but unevenly, and the refining system is especially stressed.
• As the clock ticks, regions are pulling structural energy security levers. They range from electrification to coal, from rewiring trade to inventories and demand management. By 2030, responses underway or under discussion could offset 35 to 70 percent of the Strait’s precrisis oil flows in the event of a future shock. But implementation is uncertain and comes at a price. New pipelines are the cheapest option, yet they divert rather than displace Gulf oil and are vulnerable to broader regional disruptions.
• It’s not just the Strait: With energy security, there are no easy exits but room to maneuver. Replacing imports with mature clean technologies could, in theory, displace up to nearly one-third of oil and gas use. But it can be slow and expensive, and it hits hard ceilings. As a result, a combination of new sources of supply, infrastructure to rewire trade, and inventories plays an important role.
• Energy security concerns are reshaping the business case for resilience. While measures require investment, they also can cut costs over time, enable business continuity, and drive growth. Decision makers should map their exposure across fuels, assets, and routes—and act on it, from improving energy efficiency to building flexibility in inputs, suppliers, and logistics.

The on-and-off closure of the Strait of Hormuz is the most consequential in a succession of disruptions reshaping global energy and its flows. Over the past decade, markets weathered US–China trade tensions, COVID-19, Russia’s invasion of Ukraine, and increased geopolitical fragmentation. Taken together, they moved energy security—an economy’s ability to access energy to meet its needs within economic constraints, even during disruptions—from the back burner of strategic decision-making to its center.

The world has been here before. Past energy crises offer powerful reminders of what can be at stake: gas pump lines in the 1970s, double-digit inflation, recession, political upheaval.

This disruption initially brought back fears of this 1970s-type, worst-case scenario. At its peak, around one-fifth of the global oil and liquefied natural gas supply was exposed to disruption. After the Strait’s initial closure in March 2026, the conflict waxed and waned with closures and partial reopenings, as well as new regional disruptions at the time of writing. This has led to substantial uncertainty across energy markets.

But much of the global economy has held up better than perhaps had been anticipated, at least so far (though some regions were particularly affected). Growth slowed down but remained positive globally. Brent crude topped $120 but has since declined, albeit with ongoing swings. 

What gives? It largely reflects a less energy-intensive global economy that is more reliant on services and energy system resilience built up over decades. The 1973 embargo led to fuel economy standards, nuclear energy expansion in some countries, and the creation of the International Energy Agency (IEA). With the lessons from past crises, the world benefited from strategic petroleum reserves, bypass pipelines for oil, and a diversified global trade network that was able to rewire. The world has shock absorbers, albeit imperfect, that were much more limited 50 years ago.

While these have kicked in, they have real limits. Pipelines and alternate routes have themselves been disrupted. Inventories aren’t infinite. Stress in parts of the system, particularly refining, has led to some demand destruction, with vulnerable societies bearing the brunt of economic pain. Uncertainty persists regarding when the crisis might be resolved. These factors are leading to concerns about long-term energy security that will outlast this disruption.

This report explores how shock absorbers helped cushion the blow of the world’s largest energy shock, what it reveals about the resilience—and lingering vulnerabilities—of today’s system, and how countries and companies in the energy sector and beyond may prioritize energy security going forward.

Energy security is less about eliminating dependencies than managing them effectively. There is no single route to resilience. Decision makers will need to build a portfolio of levers to prepare for future shocks. Different measures work over different time horizons, in different contexts, and with different trade-offs—including their emissions footprint—at a time when the world is already not on track to meet the goals of the Paris Agreement.¹“Investing in the energy transition: Time to look at whole-system value,” McKinsey, September 1, 2026.

Ultimately, there are no easy exits, but there is considerable room to maneuver. For countries and companies that get it right, energy security need not simply be a cost to bear. It can reduce exposure to volatility, strengthen business continuity, and open opportunities to better navigate a more volatile future.

The 2020s have been marked by big disruptions affecting global energy and trade. But the Strait of Hormuz crisis of 2026 is in a category of its own.

How has the energy system borne the largest energy supply disruption in modern history? Thus far, it has proven more resilient than feared.²“Get ready for $200 a barrel oil prices if Hormuz stays closed,” Axios, April 1, 2026. Much of the blow was cushioned by security measures implemented after past crises—namely, inventories and pipelines.

Oil consumption has taken a hit, though a less energy-intensive global economy and users who were flexible enough to work around it reduced at least some of the economic damage.

On net: China imported less, the United States exported more, trade rewired.

But current resilience measures have limits. Prices have increased, inventories are thinning, the strain on refining systems is rising, pipelines have themselves been exposed to disruption, and the shock has not been borne evenly across countries.

The Strait of Hormuz disruption affected one-fifth of the global supply of oil and liquefied natural gas

The Strait of Hormuz is among the world’s most critical energy system arteries. Roughly 20 percent of global oil and the same for global liquefied natural gas (LNG) normally transits the Strait.³Among the external sources of data that were used in this report, we acknowledge the use of data from the International Energy Agency, Paris (IEA). We relied on IEA sources, including “Oil market report—August 2026,” IEA, August 2026; “Strait of Hormuz Factsheet,” IEA, updated February 2026; Global EV outlook 2026, IEA, May 2026; World Energy Balances 2024, IEA, July 2024; and Assessing emissions from LNG supply and abatement options, IEA, June 2025. All are licensed CC BY 4.0. We note that some analysis in this research was derived from IEA material, and the McKinsey Global Institute is solely liable and responsible for it. It is not endorsed by the IEA in any manner. This holds true for all providers of the data that went into our analysis. We gratefully acknowledge their input, but the conclusions and any errors are our own.

While the closure of the Strait has made an impact on many commodities, energy has been particularly affected.⁴This report focuses on the impact of the Strait of Hormuz shock on the energy system, specifically oil (which in this report refers to crude oil and refined oil products, unless otherwise stated) and natural gas, as well as broader energy security concerns and potential responses. The shock had impacts on many other commodities and products, from sulfur to fertilizer, and broader economic and humanitarian impacts, which are out of the scope of this research. See, for example, Energy & Materials Blog, “Looking back on H1 and ahead: Agriculture’s mid-year picture,” McKinsey, August 10, 2026. The largest hit so far has been to oil, including crude and refined products. Oil accounted for 91 percent of energy affected, while gas accounted for the rest. Used mainly for transport fuels (gasoline, diesel, and jet fuel) and petrochemicals, oil has few substitutes and is unevenly distributed geographically. That makes it a particularly challenging energy dependency to unwind. On the other hand, only 3 percent of gas supply has been directly affected. Even though one-fifth of LNG trade transits the Strait of Hormuz, LNG itself is under 15 percent of global gas supply.

All combined, at its peak the closure of the Strait disrupted 14 percent of the global combined oil and gas supply, more than double the relative size of the 1970s oil shocks and over six times Russia–Ukraine’s peak impact in 2022 (these lasted longer than the current disruption has so far) (Exhibit 1).

A bubble chart showing selected energy supply disruptions, with disruption duration in weeks on the horizontal axis and peak supply disruption as a percent of global oil and gas supply on the vertical axis. Circle size represents average energy supply disrupted over the full event, in million tons of oil equivalent per week. The 2026 Strait of Hormuz disruption shows the highest peak impact at about 14 percent despite a relatively short duration, exceeding past events such as the 1973 Arab oil embargo and the 1990 Gulf War. A companion bar to the right shows pre-crisis flows through the Strait of Hormuz were 91 percent oil and 9 percent gas.

The energy system has thus far proven largely resilient, but unevenly

This is not the late 1970s or early 1980s. An oil shock the size of the current one would have depressed the US GDP growth rate by about 5.6 percentage points in 1980—about 20 times more than now—according to a Federal Reserve Bank of Dallas estimate.⁵ Simulation based on a two-country world model using 1980 and 2024 data for the US economy. The model implies that the shock in 1980 would have caused annualized US real GDP growth to decline by 5.6 percentage points, while the same event today reduces growth by only 0.3 percentage point. See Lutz Kilian, Michael Plante, and Alexander W. Richter, “U.S. economy less vulnerable to geopolitical oil price shocks than in the past,” Federal Reserve Bank of Dallas, June 23, 2026.

Brent crude oil prices temporarily spiked to four-year highs above $120 a barrel, but have since declined, and at least so far have not returned to those levels.⁶Prices based on Brent crude oil futures. Note that all oil prices in this report refer to Brent crude unless otherwise noted. “Oil tops $120 as Donald Trump signals extended Hormuz stand-off,” Financial Times, April 29, 2026.

It’s not the ’70s anymore: Inventories and bypass pipelines absorbed most of the shock before it reached oil consumption

Since the supply shock has been overwhelmingly to oil, it serves as the clearest test of the system’s shock absorbers. Around 21 million barrels per day (MMb/d) of oil—16 MMb/d of crude and 5 MMb/d of refined product—flowed through the Strait in the fourth quarter of 2025.⁷Figures are from Energy Aspects. Our analysis contrasted this with when the Strait closed, focusing on the second quarter of 2026.⁸Figures are second quarter 2026 daily averages, unless otherwise noted. Estimates are uncertain, especially because residual Hormuz flows and unobserved Chinese inventories are imperfectly measured. IMF, IEA, and Kpler analyses reach broadly similar conclusions, although their scope and aggregation differ. IMF Blog, “The oil market absorbed the war shock, but buffers are running low,” blog entry by Jean-Marc Natal and Azim Sadikov, IMF, July 15, 2026; and Toril Bosoni, David Martin, and Rebecca Schulz, “How global oil supplies have readjusted to help fill the huge gap left by the Strait of Hormuz shock,” International Energy Agency, June 22, 2026.

Importantly, not all flows had to be replaced (Exhibit 2). Some cargoes kept moving through the Strait (3.3 MMb/d), including Iranian ones. Additionally, the market came into the disruption flush with oil. China and others were building inventory for years in the lead-up to the shock. Halting this took demand out of the market without reducing end consumption, bringing the gap to only 15.5 MMb/d.

Rerouting via pipelines and increased production closed about 35 percent of that 15.5 MMb/d in the period examined. Two pipelines allowed crude to bypass the Strait: Saudi Arabia’s East–West pipeline and ADNOC’s pipeline to Fujairah. Running both harder helped move an additional 4.7 MMb/d around the closure.⁹Pipeline rerouting is estimated based on incremental exports from Yanbu and Fujairah. A small fraction of this increase could be due to maritime rerouting and not just incremental pipeline flows. A further 0.5 MMb/d came from additional production, particularly in Brazil, Kazakhstan, the United States, and Venezuela.¹⁰“Monthly Oil Data Service (MODS) supply, demand, balances and stocks,” International Energy Agency, accessed August 2026.

Inventories helped to the tune of an additional 20 percent, particularly emergency oil stocks established under the IEA after the 1970s. Countries tapped about 3.5 MMb/d of oil inventories (mostly crude, but also products).¹¹Inventory figures discussed in this report are based on Energy Aspects data. Of that, about 2.5 MMb/d came through coordinated IEA action, with the United States supplying the majority through its Strategic Petroleum Reserve (SPR). A further 1 MMb/d came from China.

Reduced oil consumption accounted for about 45 percent, or 6.8 MMb/d. Of course, there is uncertainty in some of these figures; nonetheless, the numbers here are representative of how key shock absorbers have worked.

A waterfall chart showing Strait of Hormuz oil flows and responses from the fourth quarter of 2025 to the second quarter of 2026, in million barrels per day. Baseline flows of 21.3 million barrels per day fall by continued residual flows and reduced inventory building to a supply-demand gap of 15.5 million barrels per day. Structural responses, mainly rerouting via bypass pipelines, offset about 35 percent of the gap; inventory drawdown accounts for about 20 percent; and oil demand reduction accounts for about 45 percent, or 6.8 million barrels per day.

While oil consumption did take a hit, flexibility reduced some of the damage globally

Reduced oil consumption between the fourth quarter of 2025 and the second quarter of 2026 was equivalent to a decline of more than 5 percent.¹²Out of the 6.8 MMb/d of reduction in consumption, about 0.5 MMb/d was related to seasonal effects. But the global economy did not correspondingly shrink, influenced in part by the fact that it is now less energy-intensive than in the past.¹³Jonas D. M. Fisher, Will Pennington, and Alessandro Villa, “The aftermath of the 2026 oil shock: Some alternative macroeconomic scenarios,” Chicago Fed Letter, July 2026, Number 523; and Vijay V. Vaitheeswaran, “Crude calculations: Why the Iran war hasn’t yet caused an oil shock,” Council on Foreign Relations, August 28, 2026. The International Monetary Fund’s forecast for 2026 global growth fell from 3.3 percent before the conflict to 3.0 percent in July. The impact was far more severe in the Middle East, where GDP is projected to swing to a 0.5 percent decline in 2026 from 3.3 percent growth in 2025, driven by disruption to energy production and exports, as well as the broader impact of the conflict.¹⁴This analysis assumed that flows through the Strait started to recover in July and normalized by March 2027. An important counterbalancing factor was the data center construction boom and associated value chain, which provided tailwinds to the global economy, especially in Asia and the United States. “World Economic Outlook Update: Global economy in crosscurrents of war and technology,” International Monetary Fund, July 2026; and Vijay V. Vaitheeswaran, “Crude calculations: Why the Iran war hasn’t yet caused an oil shock,” Council on Foreign Relations, August 28, 2026.

In Europe, Latin America, and North America, oil consumption barely dropped. Flexibility in energy use helped other regions to some extent.

China accounted for an estimated 35 percent of the global oil-use drop.¹⁵Chinese oil consumption decline was estimated based on the difference between its access to oil supply (due to reduced imports) and inventory draw. There is substantial uncertainty about additional unknown inventory beyond those that are monitored by data providers, and whether those were drawn, which would influence these estimates. China’s economy was slowing, so some of that was inevitable. But China also demonstrated the role that flexibility played in absorbing the shock, relying on capabilities it had built over decades. Its refineries helped manage transport fuel shortages by prioritizing its production with available crude while reducing naphtha production. China’s chemical industry compensated for the loss in naphtha through alternative inputs and production routes, including imported US ethane and coal-to-chemicals conversions. ¹⁶Michal Meidan, “Turmoil in the Middle East: China’s crude levers,” Oxford Institute for Energy Studies, May 2026; and Energy Explained, “Disruptions in the Middle East reinforce China’s aim for greater self-sufficiency in refining and petrochemicals,” blog entry by Luisa Palacios and Erica Downs, Center on Global Energy Policy, Columbia University School of International and Public Affairs, May 18, 2026. While China reduced exports of transport fuels to protect its domestic demand, it was able to even increase exports of some petrochemicals.¹⁷Energy Explained, “How China is managing lower oil imports,” blog entry by Erica Downs and Michal Meidan, Center on Global Energy Policy, Columbia University School of International and Public Affairs, August 13, 2026; and Asian Chemical Connections, “China PP exports could reach 5m tonnes in 2026,” blog entry by John Richardson, June 29, 2026. Other substitutions occurred, for example, more high-speed train use and less flying.¹⁸Zou Xiaotong, “Rising airfares push Chinese travelers from planes to trains during May Day holiday,” Caixin Global, May 6, 2026; Oil market report—May 2026, International Energy Agency, May 2026; and Vijay V. Vaitheeswaran, “Crude calculations: Why the Iran war hasn’t yet caused an oil shock,” Council on Foreign Relations, August 28, 2026.

Advanced Asian economies such as Japan and South Korea reduced their demand by almost 20 percent, or 1.2 MMb/d. Refiners there also prioritized producing transport fuels. To compensate, petrochemical imports from China rose.¹⁹Demand reduction based on Energy Aspects data. Japan and South Korea reduced domestic naphtha production temporarily. Imports of naphtha also dropped, as a large amount previously came from the Gulf. “Japan turns to Chinese petrochemicals amid naphtha crunch,” Nikkei Asia, April 29, 2026; Jang Ji-seung, “Naphtha falls, Chinese olefins rise: Ulsan Port’s petrochemical import map shifts,” Seoul Economic Daily, July 20, 2026; and Jonathan Yee, “INSIGHT: Asia petrochemical demand muted amid feedstock shortage,” ICIS, April 22, 2026.

While flexibility has helped to manage the hit, supply disruptions led prices to increase globally, particularly in refined fuels. The International Monetary Fund raised its 2026 inflation forecast in July to 4.7 percent from 3.8 percent preconflict.²⁰“World Economic Outlook Update: Global economy in crosscurrents of war and technology,” International Monetary Fund, July 2026; and “World Economic Outlook Update: Global economy: Steady amid divergent forces,” International Monetary Fund, January 2026.

And the developing world experienced genuine shortages and rationing, not just higher prices.²¹Manal Jaffery, “Explainer: Renewed Iran-US conflict: What does it mean for Pakistan’s petrol supply?,” Pakistan Today, July 23, 2026; and IFPRI Blog, “How African economies are absorbing the 2026 oil price shock (so far),” blog entry by Kalle Hirvonen, Katrina Kosec, and Kibrom Abay, July 6, 2026. In India, liquefied petroleum gas (LPG) for commercial use was rationed to protect households.²²Purva Jain, “India’s cooking fuel crisis needs a multi-fuel clean energy strategy,” Institute for Energy Economics and Financial Analysis, May 20, 2026. In the Philippines, the government moved public offices to a four-day week to conserve fuel.²³Erin Hale, “Southeast Asia shuts offices, limits travel as oil crisis deepens,” Al Jazeera, March 12, 2026.

While gas was less affected globally, its disruption was more concentrated and likely to be longer lasting

The global supply shock to gas has been limited, but some regions have been especially exposed. LNG through the Strait of Hormuz is a large share of imports for Asia in particular. Furthermore, physical damage to production in the Gulf has been extensive. Two affected liquefaction units, representing about 17 percent of Qatar’s export capacity, or 3 percent of all global LNG supply, were damaged and are expected to take three to five years to rebuild.²⁴Corey Paul and Matt Hoisch, “QatarEnergy expects 3-5 years to repair LNG facilities after strikes,” S&P Global, March 19, 2026. As of late August 2026, benchmark gas prices in Europe and Asia were close to double their previous-year value.²⁵Based on Dutch TTF Natural Gas (USD/MMBtu) and LNG Japan/Korea Marker (Platts) futures prices, CME Group, accessed August 2026.

Some structural relief came from non-Gulf production, which in the second quarter of 2026 was 16 percent higher year-on-year.²⁶Because gas demand is highly seasonal, comparisons in this section are the second quarter of 2026 versus the second quarter of 2025. Changes in LNG production referred to in this section are sourced from Kpler. New supply offset roughly three-quarters of the loss in LNG relative to the previous year, led by US projects that mostly came online in the second half of 2025. The rest was met by demand reductions. In Asia, coal switching in the power sector helped, but other sectors were affected, for example, fertilizer production.²⁷Sudarshan Varadhan, Emily Chow, and Ariba Shahid, “Asia pivots to coal as Middle East conflict chokes LNG supply,” Reuters, March 17, 2026; and Ruma Paul, “Bangladesh shuts fertiliser factories as Middle East crisis strains gas supply,” Reuters, March 5, 2026. In Europe, some of the shortfall was absorbed by a slower buildup of gas inventories for the winter.²⁸As of July 2026, European gas inventories were below historical seasonal averages in absolute terms. “The EU will need higher LNG imports to refill gas storage ahead of winter,” European Union Agency for the Cooperation of Energy Regulators, July 7, 2026.

How China and the United States rewired trade and rebalanced the oil system

The shifts described above in global oil markets—inventory releases, pipelines, new production, demand changes—contributed to a rewiring of global trade.²⁹All trade data are from Energy Aspects. Changes in trade reflect seaborne trade only and are influenced by changes in production, consumption, and inventories. Figures are similar but may not exactly match those in the previous section, given different data sources and the exclusion of cross-border pipeline flows. All told, more than one out of every five barrels of seaborne oil traded in the second quarter of 2026 was rewired relative to precrisis flows³⁰Calculated as the sum of all positive changes in seaborne oil trade between partners from the fourth quarter of 2025 to the second quarter of 2026, a total of around 16 MMb/d, divided by total second quarter 2026 seaborne oil trade. (Exhibit 3).

A heatmap showing the change in seaborne crude oil and refined products trade flows from the fourth quarter of 2025 to the second quarter of 2026, in million barrels per day, by exporting region and importing region. Middle East exports fall sharply across nearly all destinations, with total loading down 14.3 million barrels per day, while United States exports rise 2.2 million barrels per day. China shows the largest import decline, with discharge down 6.8 million barrels per day, and the United States column notes an estimated 1.8 million barrels per day stockpile drawdown.

China played the largest role in absorbing the shock, moving from building to drawing inventories and reducing oil consumption.³¹Recent developments have prompted some commentators to compare China’s influence in oil markets in 2026 to OPEC’s. “China has wrested control of oil markets from OPEC,” The Economist, August 13, 2026; and Ron Bousso, “China’s oil fortress will reshape the global order,” Reuters, updated July 16, 2026. As a result, its imports of seaborne crude oil and refined products fell over 40 percent from preconflict volumes.³²Including both crude oil and refined oil products seaborne imports. All figures relate to loading data and include both crude oil and refined products such as gasoline or diesel. Additional drops may have occurred in cargoes that originated in Iran and went to Southeast Asia despite having had China as a final destination, not included in this figure. This freed up cargoes for other importers in Asia.

The US release of inventories of 1.8 MMb/d and its own production increase allowed it to raise exports by 2.2 MMb/d (20 percent) from the fourth quarter of 2025.³³Comprehensive crude oil market analysis, Energy Aspects. This helped Europe and South Korea avoid significant import reductions. Other producers also helped by increasing exports.³⁴The apparent 0.6 MMb/d rise in Venezuela’s exports (second quarter 2026 versus fourth quarter 2025) does not reflect an increase in production of the same magnitude, as some production was previously being stored due to export disruptions in 2025. “Monthly oil market report—July 2026,” OPEC, July 13, 2026.

Shock absorbers have limits, and the cushion is wearing thin

Today’s shock absorbers have worked better than may have been anticipated but have had their limits—which are becoming clearer. Refined-product prices have risen. Countries have not borne the brunt of the shock evenly, with some markets experiencing shortages. The East—West pipeline, a vital buffer to the shock, has itself experienced disruption, as have alternate shipping routes through the Red Sea.³⁵Malcolm Moore, “Saudi Arabia shuts East-West pipeline that bypasses Hormuz after attacks,” Financial Times, September 11, 2026.

Importantly, inventories, which have been instrumental in managing the damage thus far, are seeing signs of strain. While aggregate figures show that the world is nowhere near running out of oil inventories, two issues are emerging. First, the specific inventories that have done the most work are being drained quickly. Second, the emerging bottleneck is increasingly refining, where buffers were thinner coming into the shock and are fragmented across products.

Take the first issue. By late August, about half a billion barrels had been drawn from inventories globally, equivalent to the global economy’s five-day need for oil (Exhibit 4). The US draw—the largest globally—was mostly from the government-owned reserves. The SPR had already fallen from about 600 million barrels before 2022 to around 400 million by the end of 2025; by late August 2026, it had declined further to less than 300 million.³⁶“Weekly U.S. ending stocks of crude oil,” US Energy Information Administration, accessed August 2026. That’s at historical minimums and is gradually approaching the floor of how low it could go.³⁷As the SPR is drawn, it could approach both statutory floors and operational limitations. The statutory floor sits at 252.4 million barrels of petroleum. See “Statutory authority for an SPR drawdown,” US Department of Energy, accessed August 2026. Operational limitations could also kick in: The Government Accountability Office found more than one quarter of the SPR’s crude oil inventory was not available for drawdown due to a combination of construction outages and cavern outages. See Energy security: Congress and DOE need a unified plan to align priorities and investments for the Strategic Petroleum Reserve, US Government Accountability Office, May 2026.

Meanwhile, the largest remaining crude stockpiles sit in China, which entered the crisis holding around 1.4 billion barrels. Yet large stocks don’t automatically translate into large releases: China has so far drawn relatively little from them.

The second issue is that the refining system is under the most pressure and has the least cover. Gulf refineries have cut output by over one-quarter, not just because of disruptions to the Strait but also because many of them have been damaged.³⁸Rachael Griffiths and Charlotte Lam, “France confirms oil crisis, says 30-40 percent of Gulf energy infrastructure destroyed,” France 24, March 25, 2026. At the same time, close to 2 MMb/d of Russian refining capacity is estimated to be offline in mid-July.³⁹Tatiana Mitrova, Luisa Palacios, and Daniel Sternoff, “Beyond crude: Iran war reveals refined products as an energy security blind spot,” Center on Global Energy Policy, Columbia University School of International and Public Affairs, August 28, 2026; and “What has been hit in Ukraine’s attacks on Russian energy sites?,” Reuters, updated August 27, 2026. Refineries in other regions are running at almost full capacity but haven’t been able to fully replace that lost output. Moreover, efficiency losses are biting as refiners adapt to crude grades they were not optimized for, leading to lower yields of the products most in demand, such as jet fuel and diesel.⁴⁰Giulia Petroni and Adam Whittaker, “Why the real oil squeeze is happening in refineries,” Wall Street Journal, August 11, 2026.

Product inventories can bridge only part of the gap. Refined product inventories have so far been drawn more slowly than crude. More than 70 percent of the barrels made available by the IEA-coordinated release were crude.⁴¹“IEA confirms Member country contributions to collective action to release oil stocks in response to Middle East disruptions,” International Energy Agency, March 19, 2026. But that does not imply a longer-lasting cushion. Refined-product stocks are thinner than crude’s and fragmented by both fuel and location. Diesel cannot substitute for jet fuel, and stocks in one market may not readily relieve shortages in another. Aggregate figures can therefore conceal local scarcity. While product stocks in Japan and South Korea have held up, by late July inventories of many products, from jet fuel in Europe to gasoline in the United States, were hitting five-year minimums.

The combined effect of refining disruptions and limited product inventories has already translated into higher prices. While the clock ticks on the crisis, the damage could hit demand, especially if inventories are no longer able to respond as much as they have so far. The 1970s established strategic crude inventories; now 2026 may signal more efforts to shore up buffers for refined products.⁴²Tatiana Mitrova, Luisa Palacios, and Daniel Sternoff, “Beyond crude: Iran war reveals refined products as an energy security blind spot,” Center on Global Energy Policy, Columbia University School of International and Public Affairs, August 28, 2026.

Oil inventories have been drawn unevenly across fuels and regions.

Historical change in crude oil and refined product inventories (including commercial inventories), annual 2010–26, with 2026 monthly focus, million barrels

Crude oil Refined products

¹Five-year minimum inventory level between May 2021 and May 2026.

²Historical minimums are recorded from 1984 for OECD countries and from 2010 for non-OECD countries, and up to February 2026.

³Based on officially known inventories.

⁴US Department of Energy, SPR statutory authority policy.

⁵Due to data availability, the displayed chart and rate of decline correspond to the March–May period, while declines in other regions correspond to the March–July period.

Source: International Energy Agency; Energy Aspects; US Energy Information Administration; McKinsey Energy Solutions; McKinsey Global Institute analysis

McKinsey & Company

The energy system has proven more resilient than anticipated thus far. While our analysis focused on the period through the second quarter, developments at the time of writing present a mixed picture. On the one hand, crude oil flows through the Strait of Hormuz were reported to be picking back up, potentially easing some pressure, although the scale of any recovery—and whether it could be sustained—remained uncertain.⁴³Yongchang Chin, “Goldman says gulf oil exports at two-thirds of pre-war level,” Bloomberg, August 27, 2026; Barak Ravid, “U.S. conducting stealth operation to transport oil through Hormuz,” Axios, updated August 19, 2026; and Stephen Quillen, “How much oil is going through Hormuz? Why data doesn’t match US claims,” Al Jazeera, September 3, 2026. On the other, intensifying conflict in the Red Sea and pipeline disruption threatened to disrupt alternative oil export routes that had helped bypass the Strait. The crisis remains far from resolved, and substantial uncertainty persists about how long the shock will last and whether widening disruptions could undermine the mechanisms that have helped cushion it.⁴⁴Andrew England, “Houthis capture Red Sea port in blow to Saudis,” Financial Times, September 10, 2026; and Malcolm Moore “Saudi Arabia shuts East-West pipeline that bypasses Hormuz after attacks,” Financial Times, September 11, 2026.

Against that backdrop, the limits of existing resilience measures are becoming apparent. Past crises show that such conditions, particularly linked to large and prolonged shocks, can yield lasting energy system transformations (see sidebar “Lessons learned from past energy shocks”). In the next chapter, we turn to the responses under consideration by economies and their implications.

Countries and firms are starting to act to lower exposure to the Strait of Hormuz and reduce energy security risks more broadly. Measures range from speeding up electrification and creating alternative oil and gas supply to building additional pipelines to circumvent the Strait.

We take stock of these efforts broadly and also assess what they could do for future reliance on the Strait of Hormuz specifically. We estimate that measures already underway or under discussion could offset between 35 and 70 percent of precrisis oil flows through the Strait by 2030, in the event of a future shock.⁴⁵For reference, this corresponds to around 7 to 15 percent of global oil supply. This range depends largely on how many new 2026 discussions translate into realized projects.

This offers a real-world illustration that the energy security tool kit can achieve substantial results, but it is not a forecast. Implementation takes time and money and is not a given.

It also underscores that energy security is about managing vulnerabilities and trade-offs, not eliminating them. The measures being considered are unlikely to displace Gulf supply in normal circumstances. What they do is create optionality to flows through the Strait itself in the event of a shock—by both creating excess capacity elsewhere and enabling alternate routes. Bypass pipelines in particular drive most of the potential offset. They reduce exposure to the Strait but can leave Gulf oil still exposed to broader regional disruptions, including those that could threaten the pipelines and other energy infrastructure.

Economies are implementing a wide range of structural levers to build resilience

Regions are undertaking structural changes to enhance the security of their energy systems. We catalog market actions, policy shifts, and new project developments since March 2026 across seven structural energy security levers.⁴⁶This effort was as comprehensive as possible based on publicly reported information. Other assessments have included “Hormuz crisis shows clean energy is key to reducing the economic cost of fossil fuel dependence,” Energy Transitions Commission, May 15, 2026; Ravi Agrawal, “Why energy prices didn’t soar higher this year,” Foreign Policy, July 30, 2026; Jason Bordoff and Meghan L. O’Sullivan, “The long shadow of the Iran shock,” Foreign Affairs, August 14, 2026; and Beyond Hormuz: Building resilience for the next crisis, Tony Blair Institute for Global Change, July 31, 2026. We focus on actions that would directly transform how economies produce, trade, and consume energy. In some cases, these include measures influenced by broader market forces and policy goals, which also contribute to building energy security (Exhibit 5).

The first three levers substitute oil and gas with other forms of energy. Two of them also support greenhouse gas reduction:

• Electrification replaces oil and gas in end uses by deploying technologies like electric vehicles (EVs) and heat pumps, which are generally more efficient and can be powered by diverse—and domestic—electricity sources. Acceleration of this lever has been uneven globally in 2026. Global EV sales flatlined in the first half of 2026 year over year, mostly due to China and the United States.⁴⁷Unless otherwise stated, EVs include both battery electric vehicles and plug-in hybrid electric vehicles. Relative to the year prior. Electric car markets in a time of uncertainty, International Energy Agency, July 30, 2026. However, they grew in other regions, for example, more than 30 percent in the European Union during the second quarter of 2026 and roughly doubled in Australia, India, and South Korea. New policy measures such as AccelerateEU were launched to support further electrification.⁴⁸“AccelerateEU to strengthen EU energy resilience,” European Commission, April 22, 2026.
• Clean energy replaces oil and gas for electricity and heat generation, both in the context of existing uses and to power new electrified uses like EVs. Much of this effort centers on expanding domestic low-emissions power generation. The picture across regions is mixed. Globally, renewables capacity growth slowed in the first half of 2026, driven by China.⁴⁹Monthly Wind and Solar Capacity Data, Ember, accessed August 2026. But in many other regions, deployment grew over the same period, and new policy instruments were put in place.⁵⁰“AccelerateEU to strengthen EU energy resilience,” European Commission, April 22, 2026; and “Korea’s first basic plan for renewable energy,” Shin & Kim, June 5, 2026. Investments in grids and storage have also stepped up to support reliability.⁵¹World energy investment 2026, International Energy Agency, May 28, 2026. Japan has accelerated plans to restart nuclear reactors.⁵²“Japan aims to rebuild two to five nuclear reactors by 2040s,” The Japan Times, August 1, 2026. Implementation is also being catalyzed by forces outside of energy security, such as AI build-out.
• Coal replacement, like clean energy, powers electrification but increases emissions. Many countries have domestic coal resources and power capacity. Countries slightly increased coal-fired generation in the first half of 2026, in part to compensate for lost gas imports.⁵³Electricity mid-year update 2026, International Energy Agency, July 23, 2026. More structurally, though, some Asian and European countries have delayed or are reviewing retirements of existing coal plants for several years to retain spare capacity.⁵⁴Jung Min-ho, “Korea delays shutdown of coal-powered plants amid energy crisis,” Korea Times, March 30, 2026; and Alvise Armellini, “Italy to postpone shutdown of coal-powered plants by 13 years,” Reuters, March 31, 2026. Coal can also be converted into fuels and chemicals to directly replace oil and gas. Coal-rich China and India have announced new coal conversion capacity.⁵⁵“China bets on synthetic gas as geopolitical risk drives need for energy security,” Rystad Energy, 2026; and “Cabinet approves scheme for promotion of surface coal/lignite gasification projects with a financial outlay of Rs. 37,500 crore,” Press Information Bureau, Ministry of Coal, Government of India, May 13, 2026.

The next three levers secure oil and gas supply and use:

• Alternative oil and gas supply diversifies production and could reduce exposure to geographic chokepoints. Net exporters in the Americas are pulling this lever hardest. US oil output has risen to a new high, and new capacity increases have been announced.⁵⁶“U.S. Field Production of Crude Oil,” US Energy Information Administration; “Crude oil and natural gas drilling activity,” US Energy Information Administration; “Letter to stockholders issued by Diamondback Energy, Inc.,” Diamondback Energy, May 4, 2026; Scott DiSavino and Anjana Anil, “US oil and gas rig count rises to highest since March 2025, Baker Hughes says,” Reuters, August 14, 2026; and Jamie Smyth and Stephanie Findlay, “US oil producers increase output to capture price surge from Iran war,” Financial Times, May 23, 2026. Argentina and Venezuela have accelerated ongoing projects, and Canada has announced increased ambitions.⁵⁷Adam Whittaker, “BP, XRG partner on Venezuelan offshore gas development as oil majors tentatively return,” Wall Street Journal, August 14, 2026; Jordan Blum, “Venezuela oil minister to U.S. companies: ‘It’s an entire world waiting to be discovered,’” Fortune, August 20, 2026; Florencia Lendoiro, “YPF subió su previsión de ganancias e inversiones y anticipó un avance clave en el Argentina LNG,” Bloomberg Línea, August 11, 2026; and “Major milestone for oilsands production and Pathways,” Government of Alberta, Canada, July 13, 2026. Norway and the United Kingdom are discussing new oil and gas capacity.⁵⁸“What are the arguments for and against drilling in the North Sea?,” BBC, August 19, 2026; and Nerijus Adomaitis and Nora Buli, “Equinor, Aker BP, and Vaar target major Norway oil, gas discoveries,” Reuters, August 24, 2026. Australia is studying its first new refinery since the 1960s.⁵⁹Anthony Albanese et al., “First step announced to develop potential new oil refinery for Australia,” Prime Minister of Australia media release, July 28, 2026.
• Rewiring of energy trade flows enables existing and new sources to reach markets through a broader range of trade routes and partners, enabled by infrastructure and, in some cases, new contracts. Gulf exporters are building additional pipelines that circumvent the Strait of Hormuz.⁶⁰Discussed in further detail in the next section. Canada and the United States are advancing LNG export infrastructure.⁶¹“Enhanced investment co-operation advances efforts around LNG Canada’s proposed Phase 2 expansion,” Natural Resources Canada news release, May 14, 2026; “Caturus announces final investment decision for 9.5 Mtpa Commonwealth LNG export facility in Cameron, LA,” Caturus press release, May 15, 2026; “U.S. natural gas exports to grow nearly 30% by 2027 as LNG facilities ramp up,” US Energy Information Administration, April 16, 2026; and “LNG Canada Phase 2,” Major Projects Office, Government of Canada, modified July 2, 2026. On the import side, the European Union announced additional LNG import infrastructure.⁶²European LNG Tracker, Institute for Energy Economics and Financial Analysis, accessed August 2026; and Adrian Stoica, “Transgaz and its European partners advancing the expansion of the Vertical Gas Corridor,” Energy Industry Review, July 13, 2026. South Korean refiners started making operational adjustments to take a broader range of non-Middle Eastern crude, with SK Energy announcing plans for further retooling.⁶³Kim Hee-su, “Korean refiners activate ‘Plan B’ as Hormuz risks complicate crude diversification,” Aju Press, April 14, 2026; and Yoo-Jung Roh, “SK Energy to cut Middle East crude reliance to 50% from 70%,” Korea Economic Daily, June 23, 2026.
• Building inventories provides a temporary buffer to shocks. Many countries with limited inventories have announced plans for new ones, including India, Pakistan, and the Philippines.⁶⁴Khalid Mustafa, “Pakistan to develop 90-day POL reserves,” News International, April 28, 2026; “Pakistan plans oil storage scheme with Saudi Arabia, Kuwait, Qatar: Minister,” Nation, August 10, 2026; Nidhi Verma, “India’s ONGC plans to build 1.75 million ton national strategic oil reserve,” Reuters, July 10, 2026; Alena Mae S. Flores, “PH weighs Bataan, Mindanao sites for 15-million barrel petroleum reserves,” Manila Standard, July 2, 2026; and “South Africa proposes strategic oil reserve expansion,” BBC, July 29, 2026. Advanced economies that already held crude inventories are expanding their historically thinner product reserves; Australia has announced a new government-held reserve of 1 billion liters of diesel and jet fuel.⁶⁵“Fuel supply and security,” Budget 2026–27, Government of Australia, May 2026. Accessed in August 2026.

The last lever reduces and better manages overall energy needs:

• Demand management reduces the energy required to perform a given economic activity or makes its use more flexible. Canada, China, and some European countries are preparing new efficiency standards for products from refrigerators to industrial electric motors.⁶⁶“Canada Gazette, Part I, Volume 160, Number 25: Regulations Amending the Energy Efficiency Regulation, 2016 (Amendment 19),” Canada Gazette, Government of Canada, June 20, 2026; Ruchira Singh, “China mandates energy efficiency compliance for 9 heavy industries by 2028: report,” S&P Global, June 16, 2026; and “We explain ErP2026 and how the new fan efficiency regulations work,” Airtècnics, July 20, 2026. Some combine efficiency with electrification, such as programs that incentivize building insulation combined with heat pumps.⁶⁷ “Energy savings for NSW households: Loans and discounts to help families lower their bills,” Government of New South Wales, Australia, media release, June 17, 2026; “Effective, sustainable and better targeted—a new stage of support from the New Green Savings 2026+ program,” State Environmental Fund of the Czech Republic, March 9, 2026; “Cabinet presents €967 million energy relief package, as oil crisis plan enters phase 1,” NL Times, April 20, 2026.

A heatmap showing structural developments shaping energy security between March and August 2026, across nine regions grouped as net importers and net exporters. Rows list measures such as electrification, clean energy, coal replacement, alternative supply, trade infrastructure, inventories, and demand management; cells indicate whether binding policy, early signals, or limited evidence was identified. Expand renewables, build trade infrastructure, and unlock new commercial relationships show binding or committed action in every region. Net importers—especially Europe, China, India, and Japan and South Korea—show binding policy across most electrification, clean energy, and efficiency measures; net exporters are more mixed, with Australia and the Middle East showing limited evidence on nuclear expansion, coal conversion, and inventory building, and coal conversion binding only in China, India, and other Asian economies.

Energy security levers offer optionality to the Strait, not displacement of Gulf oil supply

Many energy security measures being considered in 2026 could reduce reliance on oil flows through the Strait. How material could their impact be? How much would they cost? We examine structural levers that could have the most direct impact on security in the Strait.

Our analysis considers a “precrisis” case, assessing the trajectory these levers were on before 2026. We also build an “accelerated potential” case factoring in developments since March 2026, including projects actively being discussed but not yet confirmed as of August 2026.⁶⁸Analysis of how each lever could affect oil markets by 2030. The pre-crisis case reflects pre-2026 deployment and capacity trends. The accelerated-potential case additionally incorporates market shifts since March 2026, confirmed capacity changes, and publicly announced or discussed projects that could affect the oil market by 2030. Energy-efficiency gains are embedded in oil demand projections; inventory releases are excluded because they are temporary rather than structural responses. The impact on oil demand of building inventories above pre-crisis pace is assumed to be zero by 2030. For a deeper discussion on inventories, see chapter 4. Assessment as of August 2026. Numbers are shown to the nearest 0.5 MMb/d and may not sum due to rounding. Stacked, these levers reach 7 MMb/d of offset on the precrisis trajectory and as much as 15.5 MMb/d in the accelerated case, if all discussed projects came to fruition. Using Strait of Hormuz oil flows as a yardstick, this corresponds to about 35 to 70 percent of preconflict transit (Exhibit 6).

A grouped horizontal waterfall chart comparing pre-crisis and accelerated potential scenarios for energy security levers that could offset a future Strait of Hormuz shock by 2030, in million barrels per day. Total potential offset capacity rises from 7.0 to 15.5 million barrels per day, with the largest incremental gain from bypass pipeline capacity, which doubles from 6.5 to 13.0 million barrels per day. As a share of pre-crisis flows, available offset capacity increases from about 35 percent to about 70 percent, with associated costs ranging from under 10 dollars per barrel for pipelines to 75 to 185 dollars per barrel for coal conversion.

Available supply capacity outside of the Gulf to absorb a shock is limited, but bypass pipelines could play a significant role

To absorb a potential future shock, both existing spare capacity and new additions could play a role. Accounting for this, we estimate that coal conversion and oil supply capacity could each contribute around 2.5 MMb/d by 2030, on a precrisis trajectory.⁶⁹For each of coal conversion capacity and new non-gulf oil supply, about 1 MMb/d of spare capacity exists today that could be mobilized in a crisis; and an additional 1.5 MMb/d of capacity (net of retirements) was on track to be built by 2030 pre-crisis. For the pre-crisis trajectory case, oil spare capacity and additional in-construction projects to come online before 2030 were included, based on the IEA’s Oil Analysis and Forecast to 2030, February 2026. For the accelerated potential case, potential incremental capacity being discussed in 2026 that could come online by 2030 was included based on press searches and official company or government announcements. For example, Ruby Topalian and Mike Lee, “Independent oil companies eye Permian production boost,” E&E News, June 5, 2026. For the pre-crisis trajectory case, coal spare capacity and additional already in-construction projects to come online by 2030 were included. See, for example, Colleen Howe and Sam Li, “China’s coal chemicals sector cashes in as Iran war crushes petrochemical competitors,” Reuters, March 24, 2026. For accelerated potential case, new 2026 in-discussion projects were included based on official company or government announcements. See, for example, “Notice on issuing the 2026–27 action plan for energy conservation and carbon reduction,” Ministry of Ecology and Environment of the People’s Republic of China, May 12, 2026. Additionally, they’ve experienced a post-shock acceleration of 0.5 and 1.5 MMb/d by 2030, respectively, based on announced projects.⁷⁰Additional refining capacity is needed to process additional supply. For oil, this includes a potential 0.5 MMb/d from Venezuela (further potential beyond 2030 is discussed in chapter 4). Put together, these developments add up to 5 to 7 MMb/d of capacity.

But this capacity will have to meet rising oil demand. Central scenarios imply roughly 4.5 MMb/d of net oil demand growth by 2030. This is even after accounting for increased efficiency, electrification, and clean energy—the latter two were on a precrisis trajectory to displace about 3.5 MMb/d of gross oil demand by 2030. ⁷¹Clean energy for power displaces oil both directly and indirectly. Clean energy direct impact on oil is considered in the form of clean fuel such as biofuels. It indirectly displaces oil by powering electrified use cases. Clean energy is therefore considered together with electrification to avoid double-counting. Based on estimated deployment trajectories of electrification in McKinsey Global Energy Perspectives and IEA Electric Vehicle Global Outlook Current Policies Scenario. Most of this figure, about 3 MMb/d, corresponds to electric vehicles (passenger cars and others), with the remaining corresponding to electrification of heat in industries and homes and biofuels. Overall oil demand projections are based on the Continued Momentum scenario from McKinsey Global Energy Perspective, and also considered IEA and OPEC reference cases. Why don’t these levers play a bigger role? Take EVs as an illustration. Sales are on track to be 30 percent of all new car sales globally by the end of 2026. However, they account for less than 5 percent of cars on the road.⁷²Electric car markets in a time of uncertainty, International Energy Agency, July 2026. Transitioning the current stock of fossil-fuel-burning assets—from cars to boilers—takes time. Furthermore, electrification and clean energy trends have not yet shown evidence of post-shock acceleration at a global level, and even accounting for the regions where they have, the uplift in oil displacement has been relatively small.⁷³As a reference, the estimated uplift when accounting only for regions that accelerated—and ignoring regions that decelerated—would be on the order of 0.5 MMb/d.

Combined, the supply and demand views suggest only about 1–3 MMb/d of potential available supply capacity outside the Gulf by 2030.⁷⁴For reference, in 2025 the IEA expected 2.5 MMb/d additional spare oil capacity, of which around 1 MMb/d would be outside of the gulf assuming pro rata distribution of spare capacity based on total capacity additions. IEA’s Oil Analysis and Forecast to 2030, February 2026. Historically, the gulf was the region that maintained the most spare oil capacity. While of course there is uncertainty around future demand, energy systems generally add supply to keep pace with it rather than maintain large amounts of idle capacity.

The last major lever being considered to bolster security is bypass pipelines. They could move the needle much further in terms of offsetting flows from the Strait in a shock, based on announcements and discussions to date. Bypass pipeline spare capacity around the Strait was already at 4.5 MMb/d before the crisis and was on track to reach 6.5 MMb/d by 2030.⁷⁵“Strait of Hormuz Factsheet,” IEA, updated February 2026; and Yousef Saba, “UAE’s new oil pipeline push to double export capacity bypassing Hormuz,” Reuters, May 15, 2026. Since the crisis, many additional routes are being discussed, such as an Iraq–Turkey pipeline and a third pipeline connecting interior fields in the United Arab Emirates with the Fujairah port that could bring total diversion potential to 13 MMb/d in the accelerated potential case. The feasibility of them being built by 2030 is highly dependent not just on when projects are approved but when construction starts.⁷⁶Based on a scan of new in-discussion pipeline projects. Spare capacity pre-crisis based on Saudi Arabia’s East–West pipeline and the United Arab Emirates’ ADCOP Fujairah pipeline. Additional capacity pre-crisis based on Fujairah pipeline expansion. In-discussion pipelines considered for the “accelerated potential” case are in early stages of discussion, and viability is still unknown, but could technically be feasible by 2030. These included pipelines from Iraq, expansion on Saudi Arabia East–West pipeline, and a third United Arab Emirates Fujairah pipeline. Others consider a similar but not equal set of pipelines, including Goldman Sachs and Kpler. See David McHugh, “Middle East oil producers step up plans to bypass the Strait of Hormuz,” AP News, July 23, 2026 and Victoria Grabenwöger, “Beyond Hormuz: The pipeline routes that could reshape Gulf oil flows,” Kpler, May 2026.

Energy security around the Strait could rise—but measures come at a price and offer insurance, not displacement of Gulf supply

The actions being considered reveal important realities and trade-offs of energy security.

First is that implementing measures comes at a price. To understand it, we analyzed the cost of the extra offset potential announced since March 2026. New coal-to-liquids conversion plants run at $75–$185/bbl and potential new oil supply outside of the Gulf at $40–$60/bbl, against Gulf oil, where most supply runs below $30/bbl.⁷⁷Coal-to-liquids cost range is based on inflation-adjusted figures for new plants, with China new builds for the lower end, and US builds for the upper end. “Prospects of the Chinese coal chemical industry in an increasingly carbon-constrained world,” Oxford Institute for Energy Studies, February 2024; and “Cost and Performance Baseline for Fossil Energy Plants, Volume 4: Coal-to-Liquids via Fischer-Tropsch Synthesis,” National Energy Technology Laboratory, October 2014. Oil price cost of potential new supply based on “Dallas Fed Energy Survey,” Federal Reserve Bank of Dallas, 2025; and “US oil producers will struggle to defend margins at $60 WTI,” Rystad Energy, April 10, 2025.

Electrification’s economics vary widely by market and use case, and it can often deliver a positive business case over time relative to conventional high-emissions technologies. This is because up-front capital expenditures are offset by lower operating costs. Nonetheless, the up-front outlays can be large, posing a barrier particularly when financing is constrained. The up-front cost of the incremental electric passenger cars sold by 2030 alone is about $1 trillion more than the equivalent internal combustion fleet.⁷⁸Up-front capital requirement calculated as 130 million electric vehicles multiplied by incremental average global purchase premium compared with internal combustion vehicle, from McKinsey Center for Future Mobility. Public charging infrastructure is excluded. Up-front purchase cost is only one component of total cost of ownership (TCO); depending on the market and use case, EVs can have either lower or higher TCO than comparable internal combustion engine vehicles. Outcomes vary with factors including vehicle purchase price and depreciation, ownership period and mileage, fuel and electricity prices, charging patterns, financing, maintenance, taxes, and incentives. For example, the IEA estimates that, at 2025 prices and excluding subsidies, battery-electric vehicles had payback periods of less than eight years in 11 of 27 EU countries. See “Comprehensive Total Cost of Ownership Quantification for Vehicles with Different Size Classes and Powertrains,” Argonne National Laboratory, April 2021;“Total cost of ownership difference between BEV and ICE cars and BEV payback period,” International Energy Agency, updated June 5, 2026; and “Battery electric vehicles,” 2024 Transportation Annual Technology Baseline, National Laboratory of the Rockies, 2024. From an emissions perspective, electrification would generally contribute to lower emissions—unlike coal, which would increase them.⁷⁹For a discussion of how much EVs reduce emissions in different regions, see The hard stuff: Navigating the physical realities of the energy transition, McKinsey Global Institute, August 14, 2024.

Pipelines can be comparatively cheaper. Large pipelines generally cost under $10/bbl, assuming full utilization.⁸⁰Costs are expressed per barrel of oil, based on capital expenditure associated with pipeline construction, assuming full utilization. See also “A global pipeline-investment boom is under way: New conduits for oil will improve energy security, but come at a cost,” Economist, August 5, 2026. But they also come with a significant upfront capital outlay. As an example, the United Arab Emirates’ planned parallel pipeline to Fujairah has been reported at about $3 billion.⁸¹Victoria Grabenwöger, “New pipelines bypassing the Strait of Hormuz could come online in 1–2 years,” Kpler, July 10, 2026.

Second, increasing energy security around the Gulf is not the same as displacing its crude. The distinction turns on whether the Strait is open or closed. If it’s the latter, these levers could substitute lost barrels and so may be worth having even if costly. But Gulf crude sits at the bottom of the global cost curve—from about $5/bbl in the United Arab Emirates to around $30/bbl in Iraq (Exhibit 7).⁸²Gulf production sits at the low end of the global cost curve largely because of favorable geology, large and productive reservoirs, and extensive existing infrastructure. These production costs should not be confused with the market price of crude oil. Oil is sold at market-linked prices determined by global supply and demand, with individual grades typically priced at a premium or discount to benchmarks such as Brent. Low-cost oil supply can therefore be sold at market prices well above the cost of production. If the Strait is open, none of the levers displace them. They largely buy insurance against disruption on the Strait.

Gulf oil supply sits low on the cost curve.

Breakeven costs by country-resource segment

Gulf producers

Hover over a Gulf bar to see the export split: through the Strait of Hormuz not through the Strait of Hormuz

Other (non-Gulf) production

¹Breakevens are Brent-based and reflect forward-looking cash costs (operating expenses, taxes and royalties, maintenance capex) for existing production and half-cycle costs (ie, cash and development costs, excluding land costs) for new production. In all cases, breakevens include projected free cash flow from associated gas and natural gas liquids production and sales. Breakevens incorporate a 15% discount rate for all future cash flows.

²Oil production from new wells started in 2025.

³Production is split into country-resource type segments, with segments of <1 MMb/d grouped together.

Source: International Energy Agency; Rystad; Enverus; McKinsey North American Oil Perspective; McKinsey Global Institute analysis

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