When economists begin to offer time limits instead of assurances, a particular kind of dread sets in. More than ninety days have passed since the Strait of Hormuz, a narrow 100-mile stretch of water between Iran and Oman, changed from a busy shipping route to something more akin to a conflict zone. The majority of analysts still anticipate a reopening. What happens if it doesn’t, however, is the unsettling question that serious researchers are discreetly calculating.
A dire scenario in which protracted energy disruptions that last into 2027 push global inflation above 6% while global growth drops to 2% was already highlighted in the IMF’s April 2026 World Economic Outlook. That isn’t a fringe forecast from a blog with a catastrophic outlook. That’s the Fund, who is usually the most circumspect person in the room, explaining what a year-long closure would actually entail. Separately, Oxford Economics predicted that a six-month deadlock might drive up oil prices to $190 per barrel in August, bringing global inflation to 7.7%, close to its peak in 2022. That was before June. These figures appear promising if the Strait remains closed until next year.
The IEA’s own stock data provide the figures that most clearly illustrate the situation. Only 109 to 124 days of a net supply loss of about 14.5 to 16.5 million barrels per day would be covered by the world’s combined public and industry reserves, even taking into account the record 400 million barrel emergency release announced in March. In other words, a year-long issue would never be resolved by those reserves. They were purchasing time, and the majority of governments have not publicly acknowledged that time is running out.
Global merchandise trade is expected to slow to between 1.5% and 2.5% in 2026 after growing at a rate of about 4.7% in 2025. Inflation is exacerbated by this slowdown in ways that aren’t always apparent at the commodity level. Manufacturers raise their prices when freight becomes erratic and costly. Chemical plants throughout Europe impose surcharges—some as high as 30%—when feedstock prices rise, and those expenses trickle down to everything from plastics to pharmaceuticals. Since Gulf producers export more than 30% of the world’s urea, the most popular nitrogen fertilizer, through the strait, a protracted closure not only drives up energy costs but also subtly but steadily drives up food prices.
Regardless of the military situation, it’s possible that the economic damage would eventually compel a resolution. Before the pressure became unbearable, the 1973 Arab oil embargo lasted for about five months. Closing the Strait of Hormuz for three quarters would increase US headline PCE inflation by 1.47 percentage points, according to research from the Federal Reserve Bank of Dallas. Nine months is equal to three quarters. A closure that lasts until 2027 would significantly exceed that amount, and the consequences would worsen as stocks run out and other supply routes prove to be genuinely inadequate. The majority of traders continue to insist that the strait will reopen for a reason. Simply put, the alternative is too costly to model comfortably.
The shock’s immediate human effects are already apparent: thousands of flights in Europe have been canceled due to spikes in jet fuel prices, the Philippines has declared an energy emergency, and schools in Pakistan have been closed for two weeks in order to conserve commuter fuel. These aren’t abstract concepts. They are the appearance of supply shocks before their appearance in CPI reports. Scenes like those won’t be isolated news stories from struggling economies if the strait remains closed through winter and into 2027; instead, they will become the new normal, spreading to nations that still think they are safe.
According to the Dallas Fed’s modeling, inflation expectations for one-year horizons would increase by 0.32 percentage points in the US alone after a three-quarter closure. That might seem insignificant. However, central banks have fought for the past two years to keep expectations anchored at precisely these margins, and they are the ones who are most aware of how easily anchored expectations become unanchored.
The Federal Reserve, the European Central Bank, and the Bank of England are all in an uncomfortable position because the tools available to combat this type of inflation—rate increases—also hasten the already-occurring economic slowdown caused by the closed strait. As this develops, it is difficult not to feel that a waterway that most people couldn’t find on a map six months ago is guiding the world toward decisions for which it hasn’t truly prepared.
