The ongoing war involving the U.S., Israel, and Iran has led to a prolonged closure of the Strait of Hormuz, a critical oil shipping route, causing significant volatility and sharp increases in global oil prices. Brent crude closed above $100 per barrel for the second consecutive day, settling at $103.14, while U.S. crude oil ended at $98.71 per barrel, marking a 2.67% and 3.11% rise respectively on Friday. This follows a 27.9% surge in Brent prices the previous week, the largest since the Covid-19 pandemic, and an 8% weekly gain for WTI futures, their best since 1983 [4]. West Texas Intermediate crude oil was trading around $93 per barrel on Friday morning, up from $67 before the war began on February 28 [1].
Despite U.S. and allied efforts to mitigate the price surge—including the International Energy Agency's release of 400 million barrels from stockpiles, a 30-day waiver for India to buy sanctioned Russian oil, and potential loosening of the Jones Act—oil prices remain elevated. Market participants are increasingly concerned that the conflict and closure of the Strait could trigger a global economic shock, with Iranian military officials warning that oil could reach $200 per barrel if regional security remains destabilized [4].
The closure has had immediate effects on major importers such as India, which relies on the Strait for about 50% of its crude oil and most of its LPG imports. Indian Prime Minister Narendra Modi contacted Iranian President Masoud Pezeshkian to emphasize the need for unhindered energy transit, as panic-buying and supply constraints have led to rising costs and inflationary pressures. Citi estimates that sustained oil prices between $90 and $100 per barrel could increase Indian fuel prices by 5 to 10 rupees per liter, raising consumer inflation by up to 50 basis points. Nomura has revised India's inflation forecast upward to 4.5% for the fiscal year ending March 2027, citing risks from the LPG crunch [3].
Kharg Island, which handles around 90% of Iran's crude exports with a loading capacity of 7 million barrels per day, has so far remained untouched in the conflict. Analysts warn that any attempt to seize or attack the island would be highly risky and could further escalate oil prices. The U.S. administration has discussed the possibility of seizing Kharg Island, but such an operation would require significant ground forces and is seen as unlikely at this stage [2].
U.S. Defense Secretary Pete Hegseth has downplayed concerns about the prolonged closure, stating, "We have been dealing with it, and don't need to worry about it," while also emphasizing that the U.S. has contingency plans for every scenario. However, Energy Secretary Chris Wright acknowledged that the U.S. Navy was not yet ready to escort oil tankers through the strait, though Treasury Secretary Scott Bessent indicated that such operations would begin as soon as "militarily possible" [1].
Market analysts and industry leaders express growing nervousness, with Barclays' Emmanuel Cau noting that the longer the Strait remains closed, the more likely markets are to experience stagflationary pressures. Amjad Bseisu, CEO of EnQuest, described the current oil market disruption as unprecedented in scale [4].
CONCLUSION
The closure of the Strait of Hormuz amid the Iran war has driven oil prices to multi-year highs, with global markets facing heightened volatility and inflation risks. Despite efforts by the U.S. and allies to stabilize energy supplies, uncertainty persists, and analysts warn that a prolonged disruption could have severe economic consequences worldwide.