Strait of Hormuz: Lasting Impact on Global Energy Markets

The closure of the Strait of Hormuz following the outbreak of military conflict with Iran on February 28, 2026, has removed nearly 20 percent of global oil supplies from the market. This disruption has triggered a sharp increase in energy costs and created significant ripple effects across global supply chains, maritime transport, and energy markets.

According to research from the Federal Reserve Bank of Dallas published on March 20, 2026, the closure was initially driven by the necessity to adjust insurance contracts for oil tankers. The situation evolved as concerns grew over attacks on oil shipping within the Strait, which threatened to cause shipwrecks or unsustainable financial losses, effectively closing the shipping lanes.

Market Volatility and Production Curtailments

Oil markets responded rapidly to the disruption. A report from the United Nations Conference on Trade and Development (UNCTAD) dated March 10, 2026, noted that Brent crude prices rose above $90 per barrel.

The closure has forced oil producers in the Persian Gulf to treat the export disruption as a production disruption. Because local storage capacities are limited, producers must shut in oil wells once storage fills up. Iraq and Kuwait began curtailing their oil production in early March 2026.

The scale of the impact is tied to the volume of trade passing through the chokepoint. Data from the International Energy Agency (IEA) indicates that an average of 20 million barrels per day (mb/d) of crude oil and oil products transited the Strait in 2025, representing approximately 25 percent of the world’s seaborne oil trade. Approximately 80 percent of these exports are destined for Asian markets.

Logistical Constraints and Infrastructure Vulnerabilities

The Strait of Hormuz is a narrow passage separating Iran and the Arabian Peninsula, connecting the Persian Gulf to the Gulf of Oman and the Arabian Sea. At its narrowest point, the Strait is 29 nautical miles wide, with navigable channels for inbound and outbound shipping that are only 2 miles wide each, separated by a 2-mile-wide buffer zone.

Options to bypass the Strait are severely limited. While Saudi Arabia and the United Arab Emirates (UAE) possess some export routes that do not transit the Strait, other nations—including Iran, Iraq, Kuwait, Qatar, and Bahrain—rely on the passage for the vast majority of their oil exports. Current pipeline capacity to redirect crude flows away from the Strait is estimated between 3.5, and 5.5 mb/d.

The military conflict has further complicated the region’s energy security through direct attacks on oil infrastructure in the United Arab Emirates, Kuwait, and Saudi Arabia.

Impact on Natural Gas and Global Trade

Beyond crude oil, the closure has stranded a significant portion of the global liquefied natural gas (LNG) trade. According to the IEA, 93 percent of Qatar’s and 96 percent of the UAE’s LNG exports transit the Strait of Hormuz, which accounts for roughly 19 percent of global LNG trade.

The economic consequences extend to non-energy commodities and transport costs. UNCTAD identified several rising costs resulting from the disruption:

• Increased freight rates and bunker fuel prices.
• Rising insurance premiums for maritime transport.
• Higher costs for fertilizers.

These factors are expected to increase food costs and intensify cost-of-living pressures. UNCTAD highlighted that these shocks are particularly acute for developing economies that are already struggling to service debt and possess limited fiscal capacity to absorb new price increases.

The current crisis mirrors previous global shocks, such as the COVID-19 pandemic and the start of the war in Ukraine, demonstrating how disruptions in energy and agricultural inputs can propagate across interconnected global markets.