Strait Blockage: Global Economy Impact & Oil Price Surge

The ongoing closure of the Strait of Hormuz following military conflict involving Iran is having significant repercussions for the global economy, driving up oil prices and raising concerns about broader economic strain. Brent crude oil finished at $111.26 a barrel as of April 29, 2026, reflecting market anxieties over disrupted oil supplies.

The crisis began on February 28, 2026, with the outbreak of military conflict involving Iran, the United States, and Israel. This conflict has included attacks on oil infrastructure in neighboring countries such as Saudi Arabia, Kuwait, and the United Arab Emirates. The closure of the Strait of Hormuz, a critical waterway for global oil exports, initially stemmed from adjustments to insurance contracts for oil tankers, but escalated due to fears of attacks on shipping within the strait.

According to a report by the Federal Reserve Bank, a complete cessation of oil exports from the Gulf region would remove close to 20 percent of global oil supplies from the market, with approximately 80 percent of that volume typically shipped to Asia. Oil producers, including Iraq and Kuwait, began curtailing production in early March 2026, anticipating the impact of the closure on their ability to export oil.

Impact on Global Trade and Energy Markets

The Strait of Hormuz is one of the world’s most critical maritime chokepoints, carrying around a quarter of global seaborne oil trade, as well as significant volumes of liquefied natural gas and fertilizers. The disruption to shipping flows through this narrow passage is having ripple effects across energy markets, maritime transport, and global supply chains.

Oil markets reacted swiftly to the escalating tensions, with Brent crude prices rising above $90 per barrel in March 2026. Higher energy costs are expected to increase the cost of living, particularly for vulnerable populations, and may also lead to increased costs for food and other essential goods. Similar repercussions were observed during the COVID-19 pandemic and the beginning of the war in Ukraine, demonstrating how disruptions in energy, transport, and agricultural inputs can propagate across interconnected markets.

Economic Strain on Developing Nations

The current situation is particularly concerning for developing economies that are already struggling to service their debt. The increased financial pressure from rising energy and commodity prices limits their capacity to absorb new price shocks. The UN Conference on Trade and Development (UNCTAD) warns that the effects of the Strait of Hormuz disruption are spreading through the global economy within weeks, impacting energy flows, raising prices, and increasing financial pressure on developing countries.

UNCTAD’s assessment, updated from an initial report issued on March 10, 2026, confirms a rapid worsening of global conditions since the end of February. Risks now extend beyond energy markets, impacting trade and the broader global economy. Ship transits through the Strait of Hormuz have fallen dramatically, from around 130 per day in February to just 6 in March – a decline of approximately 95 percent.

Broader Economic Slowdown Anticipated

Global merchandise trade is projected to slow sharply, from approximately 4.7% growth in 2025 to between 1.5% and 2.5% in 2026. The energy shock is the primary channel through which the conflict is affecting trade and the global economy. Fuel prices have risen significantly since the escalation of the conflict and remain elevated, contributing to increased production and transportation costs worldwide.

While oil and liquefied natural gas carriers have been most severely affected, facing reduced volumes and higher risk costs, other shipping segments, such as container and dry bulk shipping, are also experiencing the impact of rising costs and disruptions. The situation underscores the vulnerability of critical maritime chokepoints to geopolitical tensions and their potential to transmit shocks across supply chains and commodity markets.

The disruption in the Strait of Hormuz is expected to continue to exert pressure on the global economy, with the duration and scale of the disruption remaining key determinants of the overall impact. Continued monitoring of the situation, particularly its implications for vulnerable economies, is crucial.