US-Israel-Iran Conflict: The Global Economic Impact of the Strait of Hormuz

The closure of the Strait of Hormuz on February 28, 2026, following the outbreak of military conflict between Iran, the United States, and Israel, has removed approximately 20 percent of global oil supplies from the market. According to research from the Federal Reserve Bank, 80 percent of the oil typically exported through the strait is shipped to Asia.

The disruption began with attacks on oil infrastructure in the United Arab Emirates, Kuwait, and Saudi Arabia. The subsequent closure of the shipping lanes was initially driven by the necessity to adjust insurance contracts for oil tankers, though concerns later shifted to the risk of shipwrecks and unsustainable losses resulting from attacks on shipping within the strait.

Production and Supply Disruptions

Because the closure prevents the export of most oil produced in the Persian Gulf, producers in the region have been forced to curtail production as local storage facilities reach capacity. Iraq and Kuwait began reducing their oil production in early March 2026.

Deloitte Global Economics Research Center reported on March 18, 2026, that the conflict has created significant roadblocks for critical global supply chains, specifically impacting the energy and agricultural sectors.

Economic Projections and Market Volatility

Oxford Economics has modeled a Prolonged Iran War scenario based on a stalemate between the U.S., Israel, and Iran that keeps the Strait of Hormuz effectively closed for six months. This scenario assumes Iranian strikes on alternative pipeline routes through the UAE and Saudi Arabia, alongside a resurgence of Houthi attacks in the Red Sea.

Under these conditions, Oxford Economics forecasts the following economic impacts:

• Global oil supplies would drop by nearly 20 million barrels per day.
• Commercial inventories would halve by mid-2026 and reach critically low levels within the following three months.
• Brent crude prices would surge to approximately $190 per barrel in August 2026, exceeding the 2008 record of $147.
• European and Asian natural gas prices would rise to $30/MMBtu in the third quarter of 2026, increasing electricity prices and hindering winter storage replenishment.
• Global inflation would reach 7.7 percent.

The loss of nearly 20 percent of the global oil supply is expected to lead to shortages and physical rationing in the second half of 2026.

Logistical and Industrial Impact

The economic impact is expected to extend beyond price increases due to the role of refined products in global commerce. Diesel serves as the primary fuel for agriculture, commercial logistics, and various industrial sectors.

Because approximately two-thirds of global oil consumption is transport-related, the disruption of diesel supplies would constrain economic activity through multiple channels, compounding the effects of higher energy costs.