Brent crude has surged more than 15% in four days as Iran declares the Strait of Hormuz closed following U.S.-Israeli strikes on Tehran. With a fifth of the world’s oil supply hanging in the balance, analysts are warning of triple-digit prices and a potential global recession.
The Chokepoint That Shook Energy Markets
It takes less than thirty minutes to sail through the Strait of Hormuz, the only sea passage from the Persian Gulf to the wider open ocean, at its narrowest point — a 21-mile corridor between Iran and Oman. But the consequences of those few miles being too dangerous to pass through have reverberated across every oil trading floor on the planet.
Since U.S. and Israeli forces launched coordinated strikes on Iran on February 28, killing Supreme Leader Ali Khamenei and targeting nuclear infrastructure, the strait has been, for all practical purposes, closed. On a regular day, about 20% of the world’s total daily oil consumption (roughly 20 million barrels daily) passes through the Strait of Hormuz. With that process stopped for an uncertain period of time, oil prices inevitably went up, in a few days experiencing a surge of more than 15%, the steepest since Russia’s invasion of Ukraine in 2022.
The closure is not formal or legally recognized. CENTCOM insists international shipping lanes remain technically open. But the market has moved as though they are not. Frankly, because, operationally, not on paper, they are closed and dangerous to pass.
Iran has long threatened to limit or fully stop the world’s most fragile shipping corridor, but never really fulfilled on that promise. That is, until now. Within hours of the strikes, the Islamic Revolutionary Guard Corps transmitted warnings via VHF radio to all vessels in the strait: no ships would be permitted to pass. Five tankers have been struck, two crew members killed, and over 150 ships are stranded in the Persian Gulf. Maersk and Hapag-Lloyd have suspended transits. Marine insurers have cancelled war-risk coverage.
The result is what Kpler analyst Michelle Bockmann called a “de facto closure” — legally ambiguous, but operationally absolute. Daily transit volumes plummeted from roughly 24 vessels to just four as of March 3, with most of those flying Iranian or Chinese flags.
What’s even more notable is that the effective closure wasn’t that hard to achieve. Iran has not had to implement a full naval blockade to halt the ship traffic. Selective drone and rocket attacks have been enough, as duly pointed out by Helima Croft, RBC Capital Markets. On that background, even the planned OPEC production boosts could be “an entirely moot point,” added the RBC energy analyst, since the lack of a sea passage won’t permit to get large portions of that oil to market.
What The Strait Actually Carries: Strategic Meaning
Impact of Strait of Hormuz crisis on oil prices (infographics)
The numbers behind the Hormuz crisis make the stakes clearly high. Roughly 20 million barrels of oil pass through the strait every day. That is about 20% of the entire world’s daily oil consumption and nearly a third of all seaborne crude exports, according to the U.S. Energy Information Administration.
Nearly 70% of that oil goes to Asia. China, the world’s largest crude importer, receives approximately half of its total oil imports through this corridor. India, Japan, and South Korea are also heavily exposed.
LNG is a secondary crisis unfolding in parallel. Qatar, the world’s largest LNG exporter, shut down production after two drones struck key facilities on March 2.
Roughly 20% of global LNG exports transit the strait, and Europe gets about 30% of its jet fuel from the corridor. European natural gas futures surged more than 20% in the immediate aftermath of the closure. For South Asian nations like Pakistan and Bangladesh, the LNG exposure is even more acute, since Qatar and the UAE supply 99% of Pakistan’s LNG imports, and 72% of Bangladesh’s.
Even nations that don’t import Gulf oil are not immune. Because oil is a globally fungible commodity, disruption anywhere reprices the entire market. A loss of Iranian barrels alone, and just to be clear, Iran produces about 3 million barrels per day, would cause China to bid aggressively for substitute supplies from other producers, crowding out other importers and driving prices higher everywhere.
Washington’s Response
President Trump pledged on Tuesday to ensure the “free flow of energy to the world.” He directed the U.S. International Development Finance Corporation to offer political risk insurance for maritime trade in the Gulf, and indicated the U.S. Navy would escort tankers through the strait “if necessary.”
The announcement temporarily softened oil prices. But the response has been met with skepticism. The U.S. Navy told shipping industry leaders that it lacks the immediate availability to provide convoy escorts at scale. Analysts at Rapidan Energy Group noted that resuming full Hormuz flows will likely require weeks, not hours, and only after the U.S. military has suppressed Iran’s capacity to mine and attack ships with anti-ship cruise missiles.
The Economic Fallout Begins
The financial damage at present is still seen by experts as manageable. At the same time, the ripples of oil surge are already spreading beyond energy markets. Gas prices in the U.S. rose an average of 11 cents on Tuesday, according to AAA, and analysts at GasBuddy project a further 10-to-30-cent-per-gallon increase at the pump over the coming week.
Stock markets have sold off. Shipping costs have spiked. War-risk insurance premiums, which had already risen from 0.125% to 0.4% of vessel value per transit in the days before the strikes, have continued climbing, making passage economically unviable for most operators even when physically possible.
OPEC+ has pledged to increase output by 206,000 barrels per day. But analysts note the measure is modest relative to the scale of disruption. Furthermore, critically, much of the Gulf spare capacity that could theoretically offset lost Iranian barrels sits behind the closed strait itself, unable to reach global markets.
A clearer picture of what’s happening to the markets and, subsequently, global economies should be revealed this week. Capital Economics estimates that if oil reaches and stays at $100 per barrel, global inflation would rise by 0.6 to 0.7 percentage points — enough, combined with slowing growth, to create a stagflationary bind that central banks would struggle to navigate.
“A prolonged closure of the Strait of Hormuz is a guaranteed global recession.”
Bob McNally, Rapidan Energy Group, former White House energy adviser
The Federal Reserve, already navigating a fragile macro environment, faces a particularly uncomfortable trap. Rate hikes to combat an oil-driven inflation spike could accelerate the very economic slowdown that higher energy prices are already inducing.
Expert Scenarios: How High Can Oil Prices Go?
Analysts are framing the crisis around a spectrum of outcomes, largely defined by two variables: how long the disruption lasts, and whether it expands beyond shipping to include attacks on Gulf production infrastructure.
How high can oil prices go? Possible scenarios from leading analysts.
The base case at most institutions remains a short-lived disruption. Goldman Sachs projects Brent declining toward $60 per barrel by year-end, assuming no sustained supply shock. Citigroup had earlier put the probability of $120 oil at 20% in the case of supply chain disruption, which is what we’re seeing happen today.
But the tail risks are severe enough that even cautious forecasters are hedging.
Vandana Hari, CEO of energy research firm Vanda Insights, told CNBC: “If it carries on for days with Iran and its proxies retaliating to the fullest extent, we are looking at worst-case scenarios for oil, including a major disruption of oil flows through the Middle East.”
The range of outcomes — from an orderly return to $70 oil within weeks to a 1970s-style energy shock that reshapes the global economy — remains as wide as the geopolitical uncertainty that produced it.
Can The World Route Around Hormuz?
Considering the probability of prolonged military conflict in the region, one cannot help but wonder how the world markets will adapt to the worst-case scenario. Are there any ways to distribute oil and LNG, avoiding the blocked Strait of Hormuz? The short answer is partially, and at great cost.
Saudi Arabia operates the East-West Pipeline, which can carry up to 7 million barrels per day from its Gulf oil fields to the Red Sea port of Yanbu, bypassing the strait entirely. The UAE has a pipeline terminating at the Gulf of Oman port of Fujairah, offering another partial workaround.
The EIA estimates roughly 2.6 million barrels per day of Saudi and UAE oil could be redirected via alternate routes. But the Jeddah terminal infrastructure limits Saudi throughput, and neither pipeline comes close to offsetting the 20 million barrels that normally transit Hormuz daily. Saudi Aramco is already attempting to reroute some shipments to the Red Sea.
Ships diverting around Africa’s Cape of Good Hope add roughly two to three weeks to transit times from the Gulf to Europe or Asia, sharply increasing shipping costs, fuel burn, and insurance premiums. For time-sensitive cargoes like LNG, which cannot be stored at sea indefinitely, the rerouting option is far more constrained.
The narrow workarounds available only reinforce what the Hormuz crisis has made brutally plain: after decades of oil market globalization, there is still no easy and full-scale substitute for 21 miles of water between Iran and Oman.
