Every day, roughly 100 cargo vessels squeezed through a corridor of water narrower than the length of Manhattan, carrying with them one-fifth of the world’s oil consumption and one-fifth of its liquefied natural gas trade. The Strait of Hormuz, a 21-mile-wide passage between Iran and Oman, is not merely a shipping lane. It is the single most consequential energy chokepoint on Earth, a waterway through which approximately 20 million barrels of oil passed daily in the years leading up to the current conflict, representing around $500 billion in annual global energy trade. Its uninterrupted operation underpins the fiscal stability of Gulf monarchies, the industrial output of Asian economies, and the pricing equilibrium of commodity markets worldwide. When the United States and Israel launched strikes on Iran on February 28, 2026, the consequences were across every oil futures exchange, insurance desk, and central bank on the planet. To understand why, it is necessary to examine what the Strait of Hormuz was before the war began, and what it meant for the world that depended on it.
The Status Quo
Geography and Strategic Significance
The Strait of Hormuz sits between the Persian Gulf and the Gulf of Oman, connecting the oil-rich Arabian interior to the open waters of the Arabian Sea and, ultimately, the global market. At its narrowest navigable point, the shipping channel consists of two lanes, each roughly two miles wide, separated by a buffer zone. Despite this slender geometry, the strait is deep and wide enough to accommodate the world’s largest crude oil tankers, making it the primary artery through which Saudi Arabia, Iraq, Kuwait, the UAE, Qatar, and Iran export the energy resources that finance their governments and fuel the global economy.
In the first half of 2025, oil flows through the strait averaged approximately 20.9 million barrels per day, equivalent to roughly 27% of all seaborne oil trade and about 20% of global petroleum liquids consumption, against a global demand backdrop exceeding 103 million barrels per day. Beyond crude oil, the strait carried approximately one-fifth of global LNG trade, with Qatar alone exporting around 9.3 billion cubic feet per day through the passage. The concentration of supply was extraordinary even by the standards of global commodity markets. Saudi Arabia accounted for 37.2% of all crude oil and condensate transiting the waterway, Iraq for 22.8%, and the UAE for 12.9%. Together, the top five exporters controlled over 93% of total Hormuz crude flows.
What made this concentration particularly significant was that most of these producers had no alternative. Iraq, Kuwait, Qatar, Bahrain, and Iran lacked meaningful pipeline bypass infrastructure, meaning the strait is effectively the only viable corridor through which their petroleum revenues could exit the region. Only Saudi Arabia and the UAE maintained operational pipelines capable of partially rerouting flows. Saudi Aramco’s East-West pipeline, running from Abqaiq to the Red Sea port of Yanbu, held a nameplate capacity of 5 million barrels per day, while the UAE’s Abu Dhabi Crude Oil Pipeline could move up to 1.8 million barrels daily to Fujairah on the Gulf of Oman. Combined, analysts estimated that roughly 2.6 million barrels per day of bypass capacity existed, a fraction of the 20 million flowing through Hormuz on any given day.
Destination Markets and Asian Dependency
The destination profile of Strait of Hormuz flows revealed a deep structural dependency that extended well beyond the Gulf itself. An estimated 84% of crude oil and condensate shipments transiting the strait were bound for Asian markets. The table below highlights the percentage of Hormuz oil transit consumed by the largest demanders of oil passing through the Strait. It is important to note that mainly those affected by the closure of the Strait are Asian economies.
Geography and Strategic Significance
The Strait of Hormuz sits between the Persian Gulf and the Gulf of Oman, connecting the oil-rich Arabian interior to the open waters of the Arabian Sea and, ultimately, the global market. At its narrowest navigable point, the shipping channel consists of two lanes, each roughly two miles wide, separated by a buffer zone. Despite this slender geometry, the strait is deep and wide enough to accommodate the world’s largest crude oil tankers, making it the primary artery through which Saudi Arabia, Iraq, Kuwait, the UAE, Qatar, and Iran export the energy resources that finance their governments and fuel the global economy.
In the first half of 2025, oil flows through the strait averaged approximately 20.9 million barrels per day, equivalent to roughly 27% of all seaborne oil trade and about 20% of global petroleum liquids consumption, against a global demand backdrop exceeding 103 million barrels per day. Beyond crude oil, the strait carried approximately one-fifth of global LNG trade, with Qatar alone exporting around 9.3 billion cubic feet per day through the passage. The concentration of supply was extraordinary even by the standards of global commodity markets. Saudi Arabia accounted for 37.2% of all crude oil and condensate transiting the waterway, Iraq for 22.8%, and the UAE for 12.9%. Together, the top five exporters controlled over 93% of total Hormuz crude flows.
What made this concentration particularly significant was that most of these producers had no alternative. Iraq, Kuwait, Qatar, Bahrain, and Iran lacked meaningful pipeline bypass infrastructure, meaning the strait is effectively the only viable corridor through which their petroleum revenues could exit the region. Only Saudi Arabia and the UAE maintained operational pipelines capable of partially rerouting flows. Saudi Aramco’s East-West pipeline, running from Abqaiq to the Red Sea port of Yanbu, held a nameplate capacity of 5 million barrels per day, while the UAE’s Abu Dhabi Crude Oil Pipeline could move up to 1.8 million barrels daily to Fujairah on the Gulf of Oman. Combined, analysts estimated that roughly 2.6 million barrels per day of bypass capacity existed, a fraction of the 20 million flowing through Hormuz on any given day.
Destination Markets and Asian Dependency
The destination profile of Strait of Hormuz flows revealed a deep structural dependency that extended well beyond the Gulf itself. An estimated 84% of crude oil and condensate shipments transiting the strait were bound for Asian markets. The table below highlights the percentage of Hormuz oil transit consumed by the largest demanders of oil passing through the Strait. It is important to note that mainly those affected by the closure of the Strait are Asian economies.
For these economies, dependence on the strait was not an abstract risk factor. Japan sourced roughly 95% of its crude imports from the Middle East, with around 70% arriving specifically via Hormuz. South Korea channelled approximately 68% of its crude imports through the passage. China, the world’s largest crude oil importer at over 11 million barrels per day, drew roughly half of its import bill from Middle Eastern suppliers. A similar concentration existed in LNG markets, where 83% of volumes moving through Hormuz were destined for Asia, and where Bangladesh, India, and Pakistan together imported almost two-thirds of their total LNG supplies via the strait.
By contrast, the United States is far less directly exposed. American crude imports from Persian Gulf countries through Hormuz amounted to roughly 0.5 million barrels per day in 2024, accounting for about 7% of total U.S. crude imports and just 2% of petroleum liquids consumption. This asymmetry would prove politically significant: the nation with the greatest military capacity to influence the strait had the least direct economic exposure to its disruption.
Tensions, Seizures, and the Shadow War at Sea
The years preceding the February 2026 strikes were not a period of calm in the Strait of Hormuz. Iran had repeatedly demonstrated its willingness to use the waterway as a lever of geopolitical pressure, particularly through the seizure of commercial vessels. Following the U.S. withdrawal from the JCPOA nuclear deal in 2018 and the reimposition of sanctions, incidents multiplied. In 2019, unclaimed attacks on ships in the Gulf region, a downed drone, and seized tankers raised fears of open confrontation between Tehran and Washington. Western naval forces operating in the Gulf warned commercial vessels not to approach Iranian waters.
The pattern intensified in 2023, when the Islamic Revolutionary Guard Corps seized multiple tankers, often citing allegations of oil smuggling. Iran’s navy also seized the St. Nikolas in January 2024, claiming it as retaliation for a 2023 U.S. seizure of an Iranian oil cargo. In April 2024, the IRGC seized the Portuguese-flagged container ship MSC Aries in the Gulf of Oman, describing its owner as “linked to Israel,” in what marked the first direct seizure of an Israeli-connected vessel. As of late 2024, at least four commercial vessels remained detained in Iranian waters. By mid-2025, a notable increase in GPS and AIS jamming and spoofing around the strait was reported, often attributed to Iranian electronic warfare capabilities.
Despite these provocations, commercial traffic continued to flow largely uninterrupted. Iran itself relied on the strait for its own crude exports, which reached close to 2 million barrels per day in early 2024, predominantly destined for China. Tehran’s calculus was understood by most analysts to be one of calibrated pressure rather than outright closure. The threat to block the strait remained a rhetorical weapon, wielded periodically to spook energy markets and extract diplomatic concessions, but never fully executed. When the Twelve-Day War between Israel and Iran erupted in June 2025, and even as U.S. forces struck underground nuclear facilities at Fordow, Natanz, and Isfahan, Iran did not act to close or significantly disrupt the strait. Oil prices briefly spiked above $74 per barrel on June 13 before settling back below $70 within days, a signal that markets viewed the episode as contained.
The Calm Before
By the second half of 2025, the Strait of Hormuz appeared to have weathered the worst of regional instability without a fundamental disruption to its function. OPEC+ production management continued to shape the volume of crude transiting the waterway, while Houthi attacks on Red Sea shipping, which had diverted significant traffic around the Cape of Good Hope since late 2023, paradoxically increased the relative importance of the Hormuz corridor as an energy lifeline. Gulf states, particularly Saudi Arabia, had begun routing more crude through their East-West pipeline to avoid Bab al-Mandeb disruptions, but the strait itself remained open and operational.
Insurance premiums for transiting Hormuz sat at around 0.125% of hull value per voyage. Roughly 100 cargo-carrying vessels passed through the strait on an average day, with 60 to 70% consisting of oil tankers and gas carriers. Global oil demand exceeded 103 million barrels per day in early 2026, and the strait’s share of total consumption had remained a remarkably stable proportion across recent years. For the Gulf Cooperation Council member states, whose government revenues depended on oil and gas exports for anywhere between 30% and 90% of their budgets, the continued functioning of Hormuz was not simply an economic convenience. It was an existential necessity.
In the weeks leading up to the February 28 strikes, early warning signs began to surface. War-risk insurance premiums for the strait crept upward, rising to between 0.2% and 0.4% of ship insurance value per transit. Iran, seemingly anticipating conflict, tripled its oil export rate between February 15 and 20, drawing down storage to reduce its exposure to potential disruptions. Saudi Arabia attempted similar precautionary moves. However, the world kept consuming. Until the morning of February 28, 2026.
The Strait of Hormuz Crisis
Operation Epic Fury
On 28 February 2026, the United States and Israel attacked Iran in what has been called Operation "Epic Fury". As a result of the airstrikes, Iran’s Supreme Leader Ali Khamenei was killed, along with other members of the Iranian leadership. Tehran’s response was immediate, and within hours the first Iranian missiles were intercepted over Israel, Saudi Arabia, the United Arab Emirates, and Qatar. On the following day, the Provisional Leadership Council officially took power in the country: it includes Masoud Pezeshkian (President), Gholam Hossein Mohseni Eje’I (Head of the Judiciary), and Alireza Arafi (jurist of the Guardian Council). The first effects of the war on shipping traffic through the Strait of Hormuz began to emerge as early as 2 March 2026. Although no formal bans had been imposed, the climate of uncertainty led to an immediate 70% drop in marine traffic compared to the previous hours.
From the very first days of the conflict, China limited itself to the role of an observer: the Chinese government was, indeed, concerned about the disruptions occurring in the Strait of Hormuz, the only route for all the ships entering and leaving the Persian Gulf. The Chinese economy is heavily dependent on the oil coming from the Gulf states, particularly that imported from Saudi Arabia. China also plays a pivotal role for Iran: approximately 90 per cent of Iran’s exported oil, which is subject to sanctions, is currently purchased by China. Iranian oil, on the other hand, accounts for only 12 per cent of China’s total oil imports. As of 3 March 2026, more than 3,000 ships were already stuck beyond the Strait of Hormuz, with a consequent impact on the price of oil, which reached 82.3 dollars per barrel. Russia is the main beneficiary of this situation: in the previous months, it had faced particular difficulties in selling its oil, due to increasing international sanctions and the pressure from Donald Trump on countries that were still purchasing it in large quantities (particularly India). While Qatar shut down its liquefied natural gas production, the United States granted India an exemption allowing it to resume buying Russian oil for 30 days. From 10 March, several Asian countries introduced austerity measures in an attempt to counter the effects of the disruption to oil and gas supplies from the Gulf states and to reduce their consumption. The following day, three civilian ships attempting to pass through the Strait of Hormuz were attacked, and the price of oil rose above $100 a barrel.
The Energy Crisis
As attacks in the Gulf continue, the governments of the United States, Japan, Germany, France and the United Kingdom have expressed their willingness to use part of their oil reserves to mitigate the negative effects of the energy crisis. Although the European Commission is optimistic about gas and oil supplies, two weeks after the start of the conflict only 77 ships have crossed the Strait of Hormuz (just over half the number that would normally pass through on any given day), most of which sailing under Chinese or Indian flags. One of the few alternatives to the Strait of Hormuz is the Fujairah oil terminal, located in the United Arab Emirates. Normally, 1.7 million barrels are shipped from Fujairah every day, corresponding to half of the UAE’s production and 2% of global output. However, its terminal and associated infrastructure (including the ADCOP pipeline, which reaches the Abu Dhabi oil fields) are nowhere near capable of handling all the oil that normally passes through the Strait by sea.
Following a meeting of the foreign ministers of the 27 European Union member States, the EU’s High Representative for Foreign Affairs, Kaja Kallas, said that a European naval mission in the Strait of Hormuz was currently not being considered. According to Arsenio Dominguez, the General Secretary of the International Maritime Organisation (the UN agency responsible for maritime safety), escorting ships through the Strait of Hormuz is not a sustainable long-term solution. To compensate for the decline in oil exports, Iraq began working to restore a disused pipeline linking the city of Kirkuk to the Turkish port of Ceyhan. The pipeline is the largest in Iraq (970 kilometres) and, according to some estimates, would allow the export of at least 250,000 barrels of oil per day via the Mediterranean Sea. Iraq is indeed the country facing the most immediate and severe economic repercussions of the closure of the Strait of Hormuz. Meanwhile, the humanitarian situation on board the ships stuck outside the Strait is deteriorating day by day: according to the International Maritime Organisation, there are around 20,000 people on board these vessels, forced to ration food and drinking water.
The Impact on the Oil Price
The impact of the Iran conflict on oil price was immediate: from the moment the markets opened on Monday 2 March, a gradual rise in the price of crude oil was observed. The main reason for this increase is the fact that there is not a real alternative to the Strait of Hormuz: although it is a stretch of sea just 30 kilometres wide, it is the only passage connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea, and is therefore vital for the transport of oil extracted in the region’s countries. The only way to export oil without passing through the Strait of Hormuz is to use oil pipelines: Saudi Arabia has one linking the Persian Gulf to the Red Sea, and the United Arab Emirates has one running from the Persian Gulf to the Gulf of Oman, but neither has a capacity comparable to the 20 million barrels that normally pass through the strait in a single day. When it comes to transporting liquefied natural gas (LNG), the situation is even more complicated, as there are no pipelines across the Gulf states.
By contrast, the United States is far less directly exposed. American crude imports from Persian Gulf countries through Hormuz amounted to roughly 0.5 million barrels per day in 2024, accounting for about 7% of total U.S. crude imports and just 2% of petroleum liquids consumption. This asymmetry would prove politically significant: the nation with the greatest military capacity to influence the strait had the least direct economic exposure to its disruption.
Tensions, Seizures, and the Shadow War at Sea
The years preceding the February 2026 strikes were not a period of calm in the Strait of Hormuz. Iran had repeatedly demonstrated its willingness to use the waterway as a lever of geopolitical pressure, particularly through the seizure of commercial vessels. Following the U.S. withdrawal from the JCPOA nuclear deal in 2018 and the reimposition of sanctions, incidents multiplied. In 2019, unclaimed attacks on ships in the Gulf region, a downed drone, and seized tankers raised fears of open confrontation between Tehran and Washington. Western naval forces operating in the Gulf warned commercial vessels not to approach Iranian waters.
The pattern intensified in 2023, when the Islamic Revolutionary Guard Corps seized multiple tankers, often citing allegations of oil smuggling. Iran’s navy also seized the St. Nikolas in January 2024, claiming it as retaliation for a 2023 U.S. seizure of an Iranian oil cargo. In April 2024, the IRGC seized the Portuguese-flagged container ship MSC Aries in the Gulf of Oman, describing its owner as “linked to Israel,” in what marked the first direct seizure of an Israeli-connected vessel. As of late 2024, at least four commercial vessels remained detained in Iranian waters. By mid-2025, a notable increase in GPS and AIS jamming and spoofing around the strait was reported, often attributed to Iranian electronic warfare capabilities.
Despite these provocations, commercial traffic continued to flow largely uninterrupted. Iran itself relied on the strait for its own crude exports, which reached close to 2 million barrels per day in early 2024, predominantly destined for China. Tehran’s calculus was understood by most analysts to be one of calibrated pressure rather than outright closure. The threat to block the strait remained a rhetorical weapon, wielded periodically to spook energy markets and extract diplomatic concessions, but never fully executed. When the Twelve-Day War between Israel and Iran erupted in June 2025, and even as U.S. forces struck underground nuclear facilities at Fordow, Natanz, and Isfahan, Iran did not act to close or significantly disrupt the strait. Oil prices briefly spiked above $74 per barrel on June 13 before settling back below $70 within days, a signal that markets viewed the episode as contained.
The Calm Before
By the second half of 2025, the Strait of Hormuz appeared to have weathered the worst of regional instability without a fundamental disruption to its function. OPEC+ production management continued to shape the volume of crude transiting the waterway, while Houthi attacks on Red Sea shipping, which had diverted significant traffic around the Cape of Good Hope since late 2023, paradoxically increased the relative importance of the Hormuz corridor as an energy lifeline. Gulf states, particularly Saudi Arabia, had begun routing more crude through their East-West pipeline to avoid Bab al-Mandeb disruptions, but the strait itself remained open and operational.
Insurance premiums for transiting Hormuz sat at around 0.125% of hull value per voyage. Roughly 100 cargo-carrying vessels passed through the strait on an average day, with 60 to 70% consisting of oil tankers and gas carriers. Global oil demand exceeded 103 million barrels per day in early 2026, and the strait’s share of total consumption had remained a remarkably stable proportion across recent years. For the Gulf Cooperation Council member states, whose government revenues depended on oil and gas exports for anywhere between 30% and 90% of their budgets, the continued functioning of Hormuz was not simply an economic convenience. It was an existential necessity.
In the weeks leading up to the February 28 strikes, early warning signs began to surface. War-risk insurance premiums for the strait crept upward, rising to between 0.2% and 0.4% of ship insurance value per transit. Iran, seemingly anticipating conflict, tripled its oil export rate between February 15 and 20, drawing down storage to reduce its exposure to potential disruptions. Saudi Arabia attempted similar precautionary moves. However, the world kept consuming. Until the morning of February 28, 2026.
The Strait of Hormuz Crisis
Operation Epic Fury
On 28 February 2026, the United States and Israel attacked Iran in what has been called Operation "Epic Fury". As a result of the airstrikes, Iran’s Supreme Leader Ali Khamenei was killed, along with other members of the Iranian leadership. Tehran’s response was immediate, and within hours the first Iranian missiles were intercepted over Israel, Saudi Arabia, the United Arab Emirates, and Qatar. On the following day, the Provisional Leadership Council officially took power in the country: it includes Masoud Pezeshkian (President), Gholam Hossein Mohseni Eje’I (Head of the Judiciary), and Alireza Arafi (jurist of the Guardian Council). The first effects of the war on shipping traffic through the Strait of Hormuz began to emerge as early as 2 March 2026. Although no formal bans had been imposed, the climate of uncertainty led to an immediate 70% drop in marine traffic compared to the previous hours.
From the very first days of the conflict, China limited itself to the role of an observer: the Chinese government was, indeed, concerned about the disruptions occurring in the Strait of Hormuz, the only route for all the ships entering and leaving the Persian Gulf. The Chinese economy is heavily dependent on the oil coming from the Gulf states, particularly that imported from Saudi Arabia. China also plays a pivotal role for Iran: approximately 90 per cent of Iran’s exported oil, which is subject to sanctions, is currently purchased by China. Iranian oil, on the other hand, accounts for only 12 per cent of China’s total oil imports. As of 3 March 2026, more than 3,000 ships were already stuck beyond the Strait of Hormuz, with a consequent impact on the price of oil, which reached 82.3 dollars per barrel. Russia is the main beneficiary of this situation: in the previous months, it had faced particular difficulties in selling its oil, due to increasing international sanctions and the pressure from Donald Trump on countries that were still purchasing it in large quantities (particularly India). While Qatar shut down its liquefied natural gas production, the United States granted India an exemption allowing it to resume buying Russian oil for 30 days. From 10 March, several Asian countries introduced austerity measures in an attempt to counter the effects of the disruption to oil and gas supplies from the Gulf states and to reduce their consumption. The following day, three civilian ships attempting to pass through the Strait of Hormuz were attacked, and the price of oil rose above $100 a barrel.
The Energy Crisis
As attacks in the Gulf continue, the governments of the United States, Japan, Germany, France and the United Kingdom have expressed their willingness to use part of their oil reserves to mitigate the negative effects of the energy crisis. Although the European Commission is optimistic about gas and oil supplies, two weeks after the start of the conflict only 77 ships have crossed the Strait of Hormuz (just over half the number that would normally pass through on any given day), most of which sailing under Chinese or Indian flags. One of the few alternatives to the Strait of Hormuz is the Fujairah oil terminal, located in the United Arab Emirates. Normally, 1.7 million barrels are shipped from Fujairah every day, corresponding to half of the UAE’s production and 2% of global output. However, its terminal and associated infrastructure (including the ADCOP pipeline, which reaches the Abu Dhabi oil fields) are nowhere near capable of handling all the oil that normally passes through the Strait by sea.
Following a meeting of the foreign ministers of the 27 European Union member States, the EU’s High Representative for Foreign Affairs, Kaja Kallas, said that a European naval mission in the Strait of Hormuz was currently not being considered. According to Arsenio Dominguez, the General Secretary of the International Maritime Organisation (the UN agency responsible for maritime safety), escorting ships through the Strait of Hormuz is not a sustainable long-term solution. To compensate for the decline in oil exports, Iraq began working to restore a disused pipeline linking the city of Kirkuk to the Turkish port of Ceyhan. The pipeline is the largest in Iraq (970 kilometres) and, according to some estimates, would allow the export of at least 250,000 barrels of oil per day via the Mediterranean Sea. Iraq is indeed the country facing the most immediate and severe economic repercussions of the closure of the Strait of Hormuz. Meanwhile, the humanitarian situation on board the ships stuck outside the Strait is deteriorating day by day: according to the International Maritime Organisation, there are around 20,000 people on board these vessels, forced to ration food and drinking water.
The Impact on the Oil Price
The impact of the Iran conflict on oil price was immediate: from the moment the markets opened on Monday 2 March, a gradual rise in the price of crude oil was observed. The main reason for this increase is the fact that there is not a real alternative to the Strait of Hormuz: although it is a stretch of sea just 30 kilometres wide, it is the only passage connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea, and is therefore vital for the transport of oil extracted in the region’s countries. The only way to export oil without passing through the Strait of Hormuz is to use oil pipelines: Saudi Arabia has one linking the Persian Gulf to the Red Sea, and the United Arab Emirates has one running from the Persian Gulf to the Gulf of Oman, but neither has a capacity comparable to the 20 million barrels that normally pass through the strait in a single day. When it comes to transporting liquefied natural gas (LNG), the situation is even more complicated, as there are no pipelines across the Gulf states.
Source: Crude Oil WTI Futures
However, the closure of the strait is not the main source of concern: should an agreement be reached at any point and the strait formally reopened, the flow of ships would resume as normal. The biggest problem lies in the destruction of production facilities: since 28 February, several extraction and storage sites have been bombed. The first company to suspend part of its production was Qatar’s leading energy firm, followed by others in Kuwait, Iraq, the United Arab Emirates and Saudi Arabia. According to the latest estimates, production in the region has now fallen by around a quarter. The impossibility of shipping the oil has then created a further problem: the storage facilities of local oil companies have filled up, and many of them interrupted extraction and refining operations because they no longer knew where to store the oil.
Conclusion and forecast
The closure of the Strait of Hormuz would represent a major shock to the global economic and financial system, primarily through its impact on energy markets and international trade.
It would transition from a localized maritime disruption to a global systemic failure through three distinct phases: speculative shock, secondary contagion, and structural realignment. While a total closure remains a low-probability, high-impact event, its occurrence would fundamentally reprice global risk and terminate the era of low-cost energy.
Speculative Shock
In the immediate wake of a disruption, market prices would decouple from physical supply. Crude oil benchmarks would likely undergo vertical price action, with projections reaching $150–$200 per barrel within days. This initial shock would be amplified by a paralysis in maritime insurance; as the London Market reclassifies the region as a war zone, War Risk premiums would skyrocket by 500%–1,000%, effectively halting non-essential traffic even for vessels outside the immediate conflict zone. On the financial front, the USD and CHF would appreciate sharply, while the currencies of energy-dependent emerging markets would face aggressive devaluation, threatening sovereign debt stability and triggering immediate liquidity crunches.
Stocks, especially in industries that eat up energy like airlines or factories, would fall hard. Energy-importing countries would feel the pain faster, as fuel and shipping costs climb, and that would spill into everything else people buy.
Secondary Contagion
Inflation would start to breathe heavier, especially in places already tired from high energy bills. Companies would face higher costs, smaller profits, and less reason to invest due to higher input cost. Central banks would be stuck between raising rates to fight inflation or keeping money loose to avoid choking growth due to the ‘cost-push inflationary’ spiral.
That’s how stagflation sneaks in, when prices rise but growth doesn’t. Emerging economies would suffer the most, their currencies shaking, debts swelling, budgets breaking apart. Over time, governments and firms would rush to find other routes, other fuels, anything to not depend so much on that narrow stretch of sea. Maybe more solar, more storage, more pipelines that go around.
Structural Readjustment
A prolonged or escalating crisis would likely trigger deeper adjustments within the global financial and energy systems. Governments and firms would accelerate efforts to diversify energy supply chains and reduce reliance on Gulf energy exports. Investments in alternative energy sources, strategic reserves, and infrastructure designed to bypass vulnerable maritime routes would likely increase. Financial markets would also adjust to a higher perception of geopolitical risk, leading to greater volatility in commodity prices and increased risk premiums in global trade and shipping.
Overall, while a long-term closure of the Strait of Hormuz remains unlikely due to the severe economic costs for all actors involved, even a temporary disruption would highlight the fragility of global energy markets. From a financial perspective, such a crisis would reinforce the importance of energy diversification, resilient supply chains, and stronger risk management within the global economic system.
Written by: Federico Di Trapani, Filippo Ariaudo, Zafer Ilkiz
Sources:
However, the closure of the strait is not the main source of concern: should an agreement be reached at any point and the strait formally reopened, the flow of ships would resume as normal. The biggest problem lies in the destruction of production facilities: since 28 February, several extraction and storage sites have been bombed. The first company to suspend part of its production was Qatar’s leading energy firm, followed by others in Kuwait, Iraq, the United Arab Emirates and Saudi Arabia. According to the latest estimates, production in the region has now fallen by around a quarter. The impossibility of shipping the oil has then created a further problem: the storage facilities of local oil companies have filled up, and many of them interrupted extraction and refining operations because they no longer knew where to store the oil.
Conclusion and forecast
The closure of the Strait of Hormuz would represent a major shock to the global economic and financial system, primarily through its impact on energy markets and international trade.
It would transition from a localized maritime disruption to a global systemic failure through three distinct phases: speculative shock, secondary contagion, and structural realignment. While a total closure remains a low-probability, high-impact event, its occurrence would fundamentally reprice global risk and terminate the era of low-cost energy.
Speculative Shock
In the immediate wake of a disruption, market prices would decouple from physical supply. Crude oil benchmarks would likely undergo vertical price action, with projections reaching $150–$200 per barrel within days. This initial shock would be amplified by a paralysis in maritime insurance; as the London Market reclassifies the region as a war zone, War Risk premiums would skyrocket by 500%–1,000%, effectively halting non-essential traffic even for vessels outside the immediate conflict zone. On the financial front, the USD and CHF would appreciate sharply, while the currencies of energy-dependent emerging markets would face aggressive devaluation, threatening sovereign debt stability and triggering immediate liquidity crunches.
Stocks, especially in industries that eat up energy like airlines or factories, would fall hard. Energy-importing countries would feel the pain faster, as fuel and shipping costs climb, and that would spill into everything else people buy.
Secondary Contagion
Inflation would start to breathe heavier, especially in places already tired from high energy bills. Companies would face higher costs, smaller profits, and less reason to invest due to higher input cost. Central banks would be stuck between raising rates to fight inflation or keeping money loose to avoid choking growth due to the ‘cost-push inflationary’ spiral.
That’s how stagflation sneaks in, when prices rise but growth doesn’t. Emerging economies would suffer the most, their currencies shaking, debts swelling, budgets breaking apart. Over time, governments and firms would rush to find other routes, other fuels, anything to not depend so much on that narrow stretch of sea. Maybe more solar, more storage, more pipelines that go around.
Structural Readjustment
A prolonged or escalating crisis would likely trigger deeper adjustments within the global financial and energy systems. Governments and firms would accelerate efforts to diversify energy supply chains and reduce reliance on Gulf energy exports. Investments in alternative energy sources, strategic reserves, and infrastructure designed to bypass vulnerable maritime routes would likely increase. Financial markets would also adjust to a higher perception of geopolitical risk, leading to greater volatility in commodity prices and increased risk premiums in global trade and shipping.
Overall, while a long-term closure of the Strait of Hormuz remains unlikely due to the severe economic costs for all actors involved, even a temporary disruption would highlight the fragility of global energy markets. From a financial perspective, such a crisis would reinforce the importance of energy diversification, resilient supply chains, and stronger risk management within the global economic system.
Written by: Federico Di Trapani, Filippo Ariaudo, Zafer Ilkiz
Sources:
- The Economist
- BBC News
- The Times
- The Wall Street Journal
- Financial Times
- International Energy Agency (IE)
- The Guardian
- Reuters
- Al Jazeera
- U.S. Energy Information Administration
- Visual Capitalist
- The World Data
- Anadolu Agency
- The Washington Institute
- Logistics Middle East
- Wikipedia