• The Strait of Hormuz is widely recognized as a vital oil transit chokepoint.
• Situated between Iran and Oman, the waterway is a narrow but strategically important channel that links crude producers in the Middle East with key markets across the world.
• For many analysts, an event where there is a blockade to flows via the Strait of Hormuz is seen as a worst-case scenario — one that could prompt oil prices to climb far above $100 a barrel.

An escalating conflict in the Middle East has thrust the world's most important oil artery back into the global spotlight.

The Strait of Hormuz is widely recognized as a vital oil transit chokepoint. Situated between Iran and Oman, the waterway is a narrow but strategically important channel that links crude producers in the Middle East with key markets across the world.

In 2022, oil flow in the Strait of Hormuz averaged 21 million barrels per day, according to the U.S. Energy Information Administration (EIA). That's the equivalent of about 21% of the global crude trade.

The inability of oil to traverse through a major chokepoint, even temporarily, can ratchet up global energy prices, raise shipping costs and create significant supply delays.

For many energy analysts, an event where there is a blockade or a significant disruption to flows via the Strait of Hormuz, is seen as a worst-case scenario — one that could prompt oil prices to climb far above $100 a barrel.

"The worst case could well be if Israel strikes Iran [and] Iran takes actions to slow down or potentially try to block the Strait of Hormuz," Alan Gelder, energy analyst at Wood Mackenzie, told CNBC's "Squawk Box Europe" on Monday.

"[This] would have a far more dramatic effect because that is where 20% of global crude exports travel through from the likes of Saudi Arabia, Kuwait and Iraq — and the UAE to some extent — that are the holders of the global spare capacity," Gelder said.

"So, we contend the market is not pricing in the worst case, it is pricing in the potential impact on Iranian energy infrastructure," he added.

Israel's promise to hit back at Iran following a ballistic missile attack last week has stoked speculation that the country could soon launch an attack on Tehran's energy infrastructure.

Iran, which has pledged a forceful response of its own in the event of any further Israeli actions, is a major player in the global oil market.

How high could oil prices go?

Energy analysts have questioned whether oil markets are being too complacent about the risks of a widening conflict in the Middle East.

Saul Kavonic, senior research analyst at MST Financial, said supply disruptions along the Strait of Hormuz could send oil prices significantly higher.

"If we see an attack on Iranian production, up to about 3% of global supply could be curtailed and even if we just see tighter sanctions, that could also start to curtail supply by up to 3%. That on its own could see oil approach 100 or even exceed 100 dollars per barrel," Kavonic told CNBC's "Squawk Box Asia" on Oct. 3.

"If [transit through the Strait of Hormuz] was to be impacted, we're talking about an oil price impact that would be three times larger than the oil price shocks of the 1970s in the wake of the Iranian revolution and the Arab oil embargo, and now we're talking about $150 plus a barrel of oil," he added.

Oil prices were lower on Tuesday, paring recent gains after notching their sharpest weekly gain since early 2023 last week.

International benchmark Brent crude futures with December expiry were last seen trading 2.1% lower at $79.19 a barrel, while U.S. West Texas Intermediate futures stood at $75.42, down 2.2%.

Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, said the general rule of thumb in commodity markets is that if supply is severely restricted, then the price will often spike to between five and 10 times its normal level.

"So, if worst came to worst and the Strait of Hormuz was closed for a month or more, then Brent crude would likely spike to USD 350/b, the world economy would crater and the oil price would fall back to below USD 200/b again over some time," Schieldrop said Friday in a research note.

"But seeing where the oil price sits right now the market doesn't seem to hold much probability for such a development at all," he added.

What about gas markets?

Warren Patterson, head of commodities strategy at Dutch bank ING, said any disruptions to transit along the Strait of Hormuz would have seismic consequences for global energy markets.

"The key concern, while still extreme, would be that these disruptions spill over to the Strait of Hormuz, affecting Persian Gulf oil flows," Patterson said in a research note published on Oct. 4.

"A significant disruption to these flows would be enough to push oil prices to new record highs, surpassing the record high of close to $150/bbl in 2008," he added.

ING's Patterson said any supply disruption in relation to the Strait of Hormuz would not be isolated to the oil market.

"It could also potentially lead to disruptions in [liquified natural gas] flows from Qatar, which makes up more than 20% of global LNG trade," he continued.

"This would be a shock to global gas markets, particularly as we move into the northern hemisphere winter, where we see stronger gas demand for heating purposes. While we are seeing a ramp-up in new LNG export capacity, this still falls well short of Qatari export volumes."