Brent crude climbed above $90 per barrel in early March 2026, and the cause sat on a narrow strip of water. UNCTAD, the UN trade and development body, describes the Strait of Hormuz as one of the world’s most critical maritime chokepoints. It carries around a quarter of global seaborne oil trade, along with significant volumes of liquefied natural gas and fertilizers.
The strait did close. A Federal Reserve Bank of Dallas article dated March 20, 2026 says the military conflict between Iran and the United States and Israel led to the closure, which it calls the first in the strait’s history. Insurance was the first trigger: tanker contracts had to be adjusted. The larger fear was that attacks on shipping would cause losses too heavy to bear, or that shipwrecks would block the lanes.
What a closure removes from the market
The Dallas Fed puts the figure at close to 20 percent of global oil supplies, with about 80 percent of the Gulf’s shipments going to Asia. For producers, the practical effect arrives fast. Once local storage fills, wells must be shut in. Iraq and Kuwait started cutting output in early March 2026, according to the Dallas Fed.
Earlier supply shocks were smaller. In 1973 and 1990, a little more than 6 percent of global supply left the market, and in 1979 and 1980 about 4 percent. The Dallas Fed calls the current shortfall three to five times larger.
The Dallas Fed scenarios
The bank’s model assumes a closure through the second quarter of 2026. It estimates that West Texas Intermediate would average $98 per barrel and annualized global real GDP growth would fall by 2.9 percentage points in that quarter. The authors say they make no projection about how long the closure will last.
Duration changes the picture sharply. If the strait reopens after one quarter, oil drops to $68 per barrel in the third quarter. A two-quarter closure sends the price to $115 per barrel in the third quarter before it falls to $76 in the fourth. After three quarters, the price could reach as high as $132 per barrel by year-end. Fourth-quarter-over-fourth-quarter global growth in 2026 would be lower by 0.2 percentage points in the shortest case, 0.3 for two quarters and 1.3 for three.
The authors add that tanker market dislocations and rising insurance rates could push prices higher than the model shows.
Ways around the strait
Options are limited. Saudi Arabia could send about 4 million barrels per day through its East-West pipeline to Yanbu on the Red Sea, roughly one-fifth of the shortfall. But the port lies within range of Iranian and Houthi missiles, and tankers heading south past Bab el-Mandeb risk Houthi attacks. Going north through the Suez Canal limits tanker size and points the oil toward Europe, not Asia.
A short United Arab Emirates pipeline to Fujairah on the Gulf of Oman has already come under Iranian attack. The Dallas Fed also notes that India appears to have struck a deal with Iran for passage, and that China could try the same.
UNCTAD warns of knock-on costs for freight, bunker fuel, insurance and food, and says many developing economies already struggle to service their debt.
Sources
- What the closure of the Strait of Hormuz means for the global economy
- Strait of Hormuz disruptions: Implications for global trade and development |
