Strife in the Strait of Hormuz drives record supply shock and stokes global stagflation risks
Oil has swung from nearly US$120 to the low US$80s in a matter of days as the US‑ and Israel‑led war on Iran disrupts flows through the Strait of Hormuz, creating what some analysts call the biggest oil supply shock on record and a serious test for inflation, growth and long‑term portfolios.
According to Al Jazeera, about 20 percent of the world’s oil – more than 20m barrels a day – usually moves through the Strait of Hormuz, a narrow chokepoint between Iran and Oman that carries roughly one‑fifth of global petroleum consumption and one‑quarter of all seaborne oil.
CBC News reports that fears of attacks have “all but stopped” tanker traffic there, forcing Gulf producers to cut output as storage fills and compounding damage from strikes on oil and gas facilities in the region.
Nicholas Mulder, a historian at Cornell University who studies the economics of war, told CBC News that “this is already the largest oil supply shock ever,” with roughly three to four times as many barrels lost as during the 1973 and 1979 crises.
Wood Mackenzie estimates, as cited by BNN Bloomberg, that the war is currently cutting Gulf oil and products supply by around 15m barrels a day and warned that crude could reach US$150 a barrel if the disruption persists.
Prices have already hit levels not seen since the aftermath of Russia’s 2022 invasion of Ukraine.
CBC News says Brent crude surged to about US$119.50 a barrel and West Texas Intermediate (WTI) briefly exceeded US$119.48; both were near US$70 before the war began on February 28.
CNN reports oil hovering close to US$100 a barrel just over a week into the conflict, pushing US gasoline sharply higher.
Then came a sharp reversal.
BNN Bloomberg reports that Brent plunged 14.5 percent in one session to US$84.73, while WTI fell 15.5 percent to US$80.31.
Those moves followed a CBS News interview in which US President Donald Trump said he thought the war against Iran was “very complete” and that Washington was “very far ahead” of his original four‑ to five‑week timeline, signalling to markets that the conflict might end sooner than feared.
Policy signals have added to the volatility.
According to BNN Bloomberg, US Energy Secretary Chris Wright briefly posted on X that the US Navy had escorted an oil tanker through the Strait of Hormuz and credited Trump with maintaining global energy stability, implying the route had reopened.
Source: Screenshot from X
The post was deleted within hours, the White House denied it and the comments triggered another price swing.
Meanwhile, policy options look constrained.
CNN reports that senior Trump officials are weighing measures ranging from easing domestic shipping rules and loosening regulations to limiting US exports, considering price controls and even intervening directly in oil futures markets.
They have discussed tapping the US Strategic Petroleum Reserve after initially ruling it out, despite Trump’s past criticism of SPR use.
BNN Bloomberg notes that G7 energy ministers stopped short of agreeing to release strategic oil reserves and instead asked the International Energy Agency to assess the situation; Reuters later reported that the IEA has proposed its largest‑ever reserve release to cool prices.
Even a ceasefire would not guarantee a quick supply rebound.
Wood Mackenzie’s Simon Flowers told BNN Bloomberg that once the conflict ends, restarting shut‑in wells to full output could take weeks or longer, even if barrels already in storage move quickly.
The macro implications are clear.
CBC News reports that higher oil and gas prices are pushing fuel costs up and rippling across sectors, with Asian economies particularly exposed because they rely heavily on Middle East imports.
Al Jazeera emphasises that oil and gas underpin not just transport, but also plastics, synthetic fabrics, detergents, cosmetics and fertilisers, so energy shocks tend to feed into food prices as well.
Economists interviewed by Al Jazeera and CBC News warn that every major oil spike in recent decades – including 1973, 1978 and 2008 – has been followed, in some form, by recession and that fears of stagflation are rising, especially in lower‑income countries where households spend a large share of income on food.
Source: Al Jazzera
Financial markets have been choppy but not panicked.
AP News says the S&P 500 dipped 0.2 percent, the Dow Jones Industrial Average fell 0.1 percent and the Nasdaq Composite was barely changed on a recent day when Brent settled around US$87.80 after touching nearly US$120.
CNBC reports that the S&P 500 is still modestly higher for the week even with the oil shock, as some strategists argue that higher energy prices can support certain sectors.
