Strait to the Point: The Impact of the Strait of Hormuz Crisis on the Bio-Economy

By Oliver Booth
Special to the Digest

On March 2, 2026, the global energy landscape was thrust into chaos when Iran’s Islamic Revolutionary Guard Corps (IRGC) officially declared the Strait of Hormuz closed, threatening to target any vessel attempting to transit. The closure followed US-Israeli military strikes on Iran that began on February 28. By March 2, commercial tanker traffic through this vital chokepoint had plummeted to near zero. By March 10, only 66 commercial vessels had transited in nine days—a mere fraction of the roughly 3,000 per month that pass under normal conditions. Major container lines—including Maersk, CMA CGM, Hapag-Lloyd, MSC, and COSCO—have suspended all Middle East routes, while war-risk insurance premiums surged 4 to 6 times their normal rates within a single week.

The commodity markets reacted instantly. Brent crude surged above $100/bbl, hitting as high as $120 before settling into a highly volatile $90–100 range. European natural gas prices jumped 39% in a single session after Qatar suspended LNG production following drone strikes on its facilities. US gasoline prices have risen about $0.60/gal since late February, averaging $3.58 nationally. While the IEA’s 32 member countries agreed to release 400 million barrels—the largest coordinated release in history—the cooling effect on prices remains subject to extreme volatility. The EIA has already revised its 2026 Brent forecast from $58 to $79/bbl, and Goldman Sachs is warning of $98+ through April.

However, looking beyond the immediate fossil fuel price shock reveals a much deeper transformation. The Strait of Hormuz crisis is actively rewriting the playbook for the global bio-economy, serving as the strongest argument for domestically produced clean fuels since the 1973 Arab oil embargo. What was previously framed largely as a climate and decarbonization initiative has overnight morphed into an urgent national security mandate. Every barrel of biofuel or renewable diesel produced from domestic feedstocks is a barrel that does not need to transit a chokepoint. In a political context where “energy dominance” is the framing of choice, clean fuels now fit the narrative perfectly.

The Erasure of the Green Premium

In the short term, the surge in crude oil prices is rapidly narrowing the traditional “green premium”—the cost gap between fossil fuels and clean alternatives. At $90–100/bbl Brent, conventional diesel translates to roughly $3.50–4.50/gal. By comparison, renewable diesel typically costs between 4.50 and $5.00/gal to produce. When producers stack existing policy incentives—such as federal RFS D4 RINs (valued at $\sim$ $0.70/gal$), California’s Low Carbon Fuel Standard (LCFS) credits ($\sim 0.35–0.50/gal), and the forthcoming 45Z tax credit—incentive-adjusted renewable diesel can close 1.50–2.00+/gal of that gap.

At these prices, renewable diesel approaches parity in California and Brazil, where imported diesel prices have actually surpassed contracts for biodiesel. Similarly, the historically steep multiple for Sustainable Aviation Fuel (SAF), which typically trades at 2–3x Jet A, becomes far less extreme when jet fuel prices are themselves surging. If these levels hold for more than a few weeks, expect real capital to move into domestic projects.

The UCO Bottleneck and Europe’s Vulnerability

Despite these tailwinds, not all clean fuel pathways are insulated from the shipping crisis. Producers heavily dependent on imported Used Cooking Oil (UCO) for SAF and renewable diesel are the immediate losers of this disruption. Europe is exceptionally exposed to this vulnerability, importing more than 80% of its UCO, most of which moves by sea.

The rerouting of vessels around the Cape of Good Hope to avoid the conflict zone adds approximately 3,500 nautical miles and 10 to 14 days to transit times, layering massive freight and insurance costs on top of a market that is already structurally tightening. Even before the conflict, UCO was under pressure: US tariffs of 125% on Chinese UCO shut trans-Pacific arbitrage, and the EU’s new traceability regulations began tightening eligible supply. UCO prices rose 5% in Q4 2025 alone; the Hormuz disruption now layers freight and insurance inflation on top of that base.

The EU’s ReFuelEU Aviation mandate (requiring 2% SAF from 2025, rising to 6% by 2030) does not change, but compliance becomes dramatically more expensive. HEFA-based SAF producers, who depend on these limited waste-oil pools, face a triple squeeze. A prolonged closure—lasting more than three months—could lead to a structural shortage, putting SAF compliance and long-term climate targets at severe risk.

The Rise of Domestic Biofuels and Alcohol-to-Jet (AtJ)

This imported feedstock squeeze is catapulting alternative, domestically sourced pathways to the forefront. Clean fuel producers utilizing local feedstocks, such as ethanol and domestically sourced biofuels, have the least exposure to chokepoint risk and the most to gain from the energy security narrative. In the US, sixteen bipartisan senators have already urged the EPA to raise 2026 RFS biomass-based diesel volumes to at least 5.25 billion gallons.

The ethanol-to-SAF, or Alcohol-to-Jet (AtJ), pathway is receiving a massive strategic tailwind as UCO-based feedstock costs spike. This serves as a significant catalyst for projects such as Gevo’s Net-Zero 1 and LanzaJet’s Freedom Pines. With domestic corn and ethanol insulated from Middle Eastern shipping lanes, AtJ becomes a vital “energy security” tool. Furthermore, US gasoline at 3.58/gal improves the economics for E15 and E85 blending, with groups like the Renewable Fuels Association already calling for year-round E15 in response to the crisis.

Capital Flight and the Stalling of Gulf Megaprojects

The crisis is also redrawing the map for the future of the hydrogen and ammonia sectors. Before the closure, Saudi Arabia, the UAE, and Oman were positioning themselves as the anchor producers for the emerging green hydrogen and ammonia export economy. These Gulf-anchored projects were intended to bring large-scale capacity online to serve as future marine fuels and industrial exports.

That momentum has been instantly checked. Drone strikes have already hit Oman’s ports at Duqm and Salalah, and Sohar now falls within the expanded war-risk insurance zone. Megaprojects like NEOM and ACWA Power now face a security environment that will complicate Final Investment Decision (FID) timelines and financing. In a medium-to-prolonged crisis (1–3+ months), we anticipate FID delays, financing being repriced, and even “capital flight”. This redirects offtaker interest toward producers in safer jurisdictions, namely Australia, Chile, and the US Gulf.

A Structural Shift for the Future

The maritime shipping industry—the sector most physically impacted by the Strait’s closure—is currently forced to push its decarbonization goals aside. The International Maritime Organization’s (IMO) Net-Zero Framework was already stalled before the crisis. Now, with the industry managing reroutes, absorbing insurance costs, and dealing with stranded vessels, the political appetite for a global carbon tax on shipping is near zero. In a prolonged scenario, the framework may be considered “dead this cycle”.

Yet, the crisis makes the strategic case for alternative marine fuels undeniable: ships running on fossil fuel from Gulf chokepoints are the ones most exposed to these geopolitical shocks. The 2026 Hormuz crisis is transforming clean fuels from environmental targets into critical security infrastructure. Just as the 1973 embargo birthed the IEA, strategic petroleum reserves, and fuel economy standards, this disruption could do the same for clean fuels.

The ingredients are now all in place: bipartisan support for biofuels in the US, SAF mandates in the EU, and a shipping industry that has just learned exactly what fossil-fuel chokepoint dependence costs. The global market is receiving a harsh, fact-forward lesson: in an era defined by unpredictable geopolitical chokeholds, the most valuable fuel is the one synthesized securely within your own borders

Digest note: Oliver Booth’s complete Strait to the Point update and Sightline Q1 Outlook can be accessed here and here.

Category: Thought Leadership, Top Stories