FNC News

Oil, War, and Somatic Memory – Exposing the Limitations of a Tangible Commodity in a Tangible World

An event like this doesn’t just make ripples, it leaves scars….

2025 was a difficult year for all oil and gas participants, as we saw a decrease of more than 16% in oil prices for the bulk of the year. For more than four months from late September 2025 to mid-February 2026, the WTI spot price for a barrel of crude oil failed to reach $65.00 per barrel. There has been much written about industry breakeven prices and the strain within the industry as oil prices dipped below the mid-60s, and it was all true. In 2025 and early 2026, we saw a combination of consolidation (acquisitions and divestitures) and significant layoffs (some up to 20% of the workforce) in the oil and gas sector—both being markers of a ‘batten down the hatches’ mentality and an industry preparing for a ‘lower-for-longer’ price environment coupled with diminished supply of tier-one drilling inventory. i

This was a bleak outlook for the industry over the near and medium term. In response, hardened oil and gas participants hopped into that proverbial tornado shelter and steadied themselves to withstand the pricing storm with one goal in mind: survive to live another day. 

And then, in a matter of weeks, the world changed. 

On February 28, 2026, the United States and Israel commenced airstrikes against Iran, specifically targeting the country’s leadership. Oil markets took note, but the initial reaction was somewhat muted. This is not surprising. We have seen the global oil market become increasingly resilient over the past five years against global events or headlines, with the recent Venezuelan headlines being the latest example of a macro event that barely dented the oil market for any extended period of time. It had seemed that the oil market had finally grown up and become so liquid and efficient that it could quickly absorb and adapt to material changes in the global chess board. Gone were the days when a single newspaper headline would result in a 3-sigma move in price. 

However, this complacent dream soon ran headfirst into the harsh reality of the physical nature of oil when Iran effectively closed the Strait of Hormuz on March 2, 2026. As a bit of context to the importance of this specific Strait, approximately 20 million barrels per day of crude oil and liquified natural gas were moving through the Strait of Hormuz in early 2026. In addition, the spare capacity of oil—meaning the oil that can be turned on to meet sudden demand increases or supply shortages—is primarily transported through the very same Strait of Hormuz. 

Thus, as the initial hope of a targeted and quick conflict faded, something else took its place: the understanding that the lifeblood of the world’s oil and other key resources was instantaneously at risk in a meaningful way. The International Energy Agency (IEA) summarized the situation best: 
 

The sheer volume of oil that is exported via the Strait of Hormuz, and the limited options to bypass it, means that any disruption to flows would have huge consequences for world oil markets. A significant spike in oil prices would be inevitable and physical shortages would quickly develop if the disruption were to be prolonged. 

While most of the oil transiting the Strait is destined for Asian markets, the impact of a disruption to the Strait would be global due to its immediate impact on pricing. The market impact would be exacerbated by the fact that, in addition to disrupting shipments of oil transiting the Strait, the vast majority of the world’s spare crude oil production capacity could be made unavailable as well. ii

This is where it becomes important to understand the winners and losers of the supply risk created by the current conflict. The U.S. gets less than 11% of its crude oil imports through the Strait and therefore remains insulated from a supply perspective. Compare that to Asian markets and you see a stark contrast. India imports roughly 30–40% of its crude oil and more than 50% of other fuel products through the Strait. China relies even more heavily on a free-flowing Strait, with more than half of its crude oil imports sourced from the Middle East. While each country may have varying levels of exposure and reliance on the Strait of Hormuz, every country is feeling the effects of significantly higher oil prices. 

Where Do We Go from Here? 

The primary question we get from our clients is what does the oil and gas industry look like once this conflict is resolved? Pundits and politicians abound have commented that a resolution to the conflict and the subsequent opening of the Strait of Hormuz would immediately trigger a significant correction in price. This is undoubtedly true, but does it mean that we will go back to the oil-pricing doldrums of 2025 and early 2026? 

There is a psychology concept called somatic memory or ‘body memory’—the concept that the brain isn’t the only place where memory is stored and that one’s body and nervous system can remember things that have occurred and manifest reactions accordingly. As an athlete or coach, this concept is familiar as we often focus on ‘muscle memory’ and the idea that, if one’s body moves to a stimulus with enough repetition, it can remember and respond without thinking or analysis. 

Whether this concept is true or not, I don’t pretend to opine on, but I do think it is an instructive conceptual lens to view global oil and gas markets after these events. 

Oil and gas markets are efficient and indiscriminate, but I would posit that they do have a memory, as do its participants across the entire value chain. Thus, while prices will undoubtedly plummet upon resolution of this conflict, it is hard to believe that we will be testing the lows seen in 2025. There is a new premium placed on this commodity and this premium, a somatic memory of sorts, will embed itself in a higher price. What will the market remember? It will remember the moment in March 2026 that shattered the comfort and complacency we had regarding the movement of oil and other critical resources around the globe. There’s no going back, at least for quite a long time. 

Countries will reexamine their reliance on existing sources and transportation routes. Critical infrastructure will be viewed through a new lens focused on security and resiliency. Companies will reexamine how they forecast and make decisions and how much optionality they’ve created to take advantage of unique pricing opportunities (especially those who were locked into contracts or hedges that priced their oil in the low $60s!). 

Our Take: An event like this doesn’t just make ripples, it leaves scars. Those scars will change how people feel and behave in the future. Upon resolution of this conflict and easing of supply constraints, we believe the price will plummet but will not touch the floors it tested in 2025. We believe that pricing will find a healthier and higher equilibrium that better considers and ‘prices-in’ the risks and difficulties that are inherent in a tangible resource like crude oil. We believe that a ‘higher floor’ on oil prices will sustain itself for a significant time until the somatic memory of this event truly fades. A higher floor would mean more capital going into domestic development in the U.S., better return on investments for oil and gas participants, and a better pricing outlook for mineral owners everywhere. 

i Reuters, Global energy layoffs deepen in 2025 as crude prices weaken, M&A deals surge, https://www.reuters.com/business/ energy/global-oil-gas-company-layoffs-2024-2025-2025-09-30/ (last visited April 2, 2026).

ii International Energy Agency, Strait of Hormuz Factsheet, https://www.iea.org/about/oil-security-and-emergency-response/ strait-of-hormuz (last visited April 2, 2026).