The global oil market is grappling with an unprecedented supply shock as the Strait of Hormuz remains closed to commercial shipping for the second consecutive month, following the outbreak of hostilities between the United States, Israel, and Iran on February 28. With diplomatic talks still fragile and a U.S. ground operation under active consideration, markets, governments, and supply chains worldwide are bracing for a prolonged disruption.
A Chokepoint Like No Other
The Strait of Hormuz — the narrow passage between Iran and Oman connecting the Persian Gulf to the Arabian Sea — is the world’s most critical energy transit corridor. In 2025, nearly 15 million barrels per day of crude oil, representing close to 34% of global crude oil trade, passed through the strait, with the bulk of exports destined for Asian markets.
The scale of disruption is without modern precedent. Roughly 20 million barrels of oil, alongside 10.8 billion cubic feet of LNG per day, ordinarily transit the strait. A closure would also strand LNG exports from Qatar and the UAE, which together represent almost 20% of global LNG exports.
Iran officially closed the strait in retaliation for the U.S.-Israeli strikes, with the IRGC issuing warnings prohibiting vessel passage. Tanker traffic dropped first by approximately 70%, with over 150 ships anchoring outside the strait to avoid risks, before falling to near zero.
Oil Prices Surge; Analysts Warn of Worse to Come
Brent crude prices have surged by an average of 50% since the war began, at one point reaching $120 per barrel. Futures traded recently near $116 a barrel — far below 2008’s all-time high of $147.50 — but U.S. government officials and Wall Street analysts have begun considering the prospect that oil prices could surge to an unprecedented $200 a barrel if the closure extends significantly.
Federal Reserve Bank of Dallas research estimates that a closure removing close to 20% of global oil supplies from the market is expected to raise the average WTI price of oil to $98 per barrel and lower global real GDP growth by an annualized 2.9 percentage points. If shipping resumes after three quarters, the oil price could rise as high as $132 per barrel by year-end, with the impact on growth remaining negative through end of 2026.
Goldman Sachs estimates that traders are demanding about $14 more per barrel of oil than before the conflict as a risk premium — roughly corresponding to their estimate of the effect of a full four-week halt in flows through the strait, assuming spare pipeline capacity is used as a partial offset.
Pipeline Bypasses Offer Only Partial Relief
Only Saudi Arabia and the UAE have operational crude pipelines that could potentially re-route flows to bypass the strait, with an estimated 3.5 to 5.5 million barrels per day of available capacity. The IEA estimates that even with full utilization of these bypasses, approximately 16 million barrels per day of oil flows remain at risk from a full closure.
Despite aggressive mitigation efforts — including rerouting through pipelines, drawing from strategic reserves, and utilizing floating storage — the market would still face a 3.4 to 7 million barrels per day residual imbalance, assuming the strait remains closed for another two months. The IEA took the unprecedented step of announcing the release of 400 million barrels from emergency reserves, but analysts say such measures can only buy time.
Cascading Effects: Food, Fertilizers, and Freight
The economic damage is spreading far beyond fuel prices. Roughly one-third of global fertilizer trade transits the Strait of Hormuz, including large volumes of nitrogen exports. Urea prices have already risen from $475 per metric ton to $680 per metric ton — with poor timing for the spring planting window in the Midwest for soy and corn.
The Gulf region produces nearly half of the world’s urea and 30% of ammonia, with about one-third of the world’s fertilizer passing through the strait. Urea prices have increased by 50% since the start of the war as of late March 2026. The LNG disruption is also impacting fertilizer production, threatening agricultural yields in the Northern Hemisphere, including corn in the U.S. — the main feedstock for U.S. beef, poultry, and dairy.
Major shipping companies Maersk and Hapag-Lloyd have already suspended Middle East routes. Ocean disruptions may take 10 to 14 days to appear, but the real pressure typically hits within 2 to 5 weeks as diverted containers arrive in clusters, terminal congestion rises, and drayage demand outpaces truck and chassis availability.
Asia Bears the Brunt
Asia accounted for approximately 84% of the crude oil and condensate shipped through the strait in 2024, with China, India, Japan, and South Korea collectively representing 69% of total flows. Nations such as Singapore, South Korea, and Taiwan depend on the strait for nearly 60% of their crude imports, while Vietnam, the Philippines, and Japan are even more vulnerable, with over 75% of their crude supply reliant on this passage.
Japan and South Korea face the most acute structural vulnerability. Japan imports approximately 95% of its crude from the Middle East, while South Korea sources roughly 70% of its oil — and a significant proportion of its LNG — from the region. Equity markets have reflected this strain: the Nikkei 225 has fallen approximately 8% since the onset of the conflict, while South Korea’s KOSPI declined over 11%, with a circuit breaker triggered in early March.
The Pentagon’s Three-Phase Plan
According to reporting by The Economist, the Pentagon’s plan to reopen the strait consists of three stages: first, destroying Iranian military assets posing a threat to navigation — fast boats, missiles, drones, and mines, with aviation playing the main role; second, sweeping the strait for mines; and third, after the threat is reduced, having the U.S. Navy begin escorting tankers.
On March 19, the United States began an aerial campaign against Iranian targets, deploying A-10 Thunderbolt II jets to strike fast-attack watercraft and Apache gunships to intercept one-way attack drones. CENTCOM also announced it had employed GBU-72 5,000-pound penetrator munitions on underground missile silos along the Iranian coast near the strait.
Military sources have observed intensive flights by U.S. attack aircraft at low altitudes over key shipping lanes as part of a mission to target and disrupt Iranian warships and naval vessels. However, despite these efforts, commercial shipping has not yet resumed at scale.
Kharg Island: The High-Stakes Wildcard
With airstrikes alone proving insufficient, attention has shifted to possible ground operations. The Pentagon is preparing for weeks of limited ground operations in Iran, potentially including raids on Kharg Island and coastal sites near the Strait of Hormuz, to find and destroy weapons that can target commercial and military shipping. The plans fall short of a full invasion and could involve special operations and conventional infantry forces.
Kharg Island is Iran’s main crude-export hub, accounting for roughly 90% of the country’s oil exports. Iranian forces have reportedly been reinforcing the island with additional troops, air defenses, anti-personnel and anti-armor mines, and MANPADS to make any landing operation costly. Analysts warn that even if Kharg were seized or severely damaged, Iran could still threaten shipping through other island positions and coastal missile systems along hundreds of kilometers of coastline.
Retired U.S. Army Lt. Col. Daniel Davis estimated there are likely only around 4,000 to 5,000 ground troops being deployed — enough to seize a small target for a period of time, but not sufficient for a sustained campaign.
Whether President Trump will approve any ground operation plans remains uncertain. White House press secretary Karoline Leavitt stated that Pentagon preparations “do not mean the president has made a decision.”
Diplomacy Runs in Parallel
Diplomatic activity is intensifying in parallel with military preparations. Pakistan is mediating between Washington and Tehran, hosting talks with the foreign ministers of Saudi Arabia, Turkey, and Egypt. Trump issued a 10-day extension to Iran to open the strait, saying talks were “going very well,” and paused strikes on Iran’s energy infrastructure through April 6.
As UNCTAD has noted, the overall global economic impact will depend on the duration and scale of the disruption — and reducing risks requires de-escalation and safeguarding maritime transport in line with international law and freedom of navigation. For now, with oil markets volatile, global supply chains strained, and military operations ongoing, the world is watching the narrow waters of the Strait of Hormuz more closely than at any point in modern history.