It takes more than a successful bombing campaign to win a war, especially when that war is not fought on the ground. The Nazis were heavily bombed during the Second World War, yet to truly end the conflict, the Soviets had to invade Berlin and topple the regime. The bombing of Iran looks like an opening act of a much bigger drama, and it appears that both sides will inevitably pay a price. So, tomorrow, keep an eye on oil prices, particularly in light of the Iranian government's decision to close the Straits of Hormuz. The risk of rising oil prices looms large, exacerbated by the ongoing conflict between Israel, Iran, and now the US.
This week, warnings echoed as we approached the weekend, a time when Trump decided to amplify his military presence. As if a global trade war weren’t enough for businesses and consumers to grapple with in the Western world and beyond, we now recognize that the Israel-Iran conflict has escalated into a full-blown war. Although this conflict unfolds thousands of miles from US soil, the economic repercussions will be unavoidable for Westerners.
Despite Federal Reserve Chair Jerome Powell’s reassurances to reporters on Wednesday, stating that officials are monitoring the situation and that “the US economy is far less dependent on foreign oil than it was back in the 1970s,” economists remain skeptical. They argue that the conflict poses a significant risk to the US economy. Indeed, JPMorgan economists, including Jamie Dimon, recently noted in a client communication that “the US and global economies are set to absorb multiple shocks this year,” with the potential for a Middle East war being paramount.
Hormuz stands as one of the world’s most critical oil chokepoints
“One of the most direct impacts on US consumers would be if the Strait of Hormuz were closed, leading to a spike in energy costs as the flow of seaborne oil and gas becomes disrupted,” explained James Knightley, chief international economist at ING. The US Energy Information Administration has underscored the importance of the Strait of Hormuz, which connects the Persian Gulf to the Gulf of Oman, labeling it “one of the world’s most important oil chokepoints.”
Last year, the volume of oil that traversed this waterway averaged 20 million barrels per day, accounting for about 20% of global petroleum liquids consumption. “Very few alternative options exist to move oil out of the strait if it is closed,” the EIA stated in an online article on Monday.
However, analysts at S&P Global Market Intelligence suggest that such actions might be more limited than the Iranian government has threatened. “Iran’s leadership is unlikely to fully close the Strait of Hormuz for an extended period; instead, it is more probable that Iran’s naval forces would deploy along the Strait and selectively block passage based on flag and destination.”
Even though the US is considered energy independent, gas prices would still “rocket higher,” Knightley warned.
Iranian Parliament Approves Closure of Strait of Hormuz
According to Reuters, the Iranian parliament has just approved the closure of the Strait of Hormuz. This decision came in response to U.S. involvement over the weekend, specifically the bombing of Iran's nuclear sites. However, the final approval will rest with Iran's Supreme National Security Council, which will determine whether this strategically significant action will be enacted. This represents serious leverage, particularly if oil prices surge tomorrow morning. Moreover, it serves as a prelude to potential escalation should negotiations falter among all parties involved.
Esmail Kosari, a member of parliament and commander in the Revolutionary Guards, stated in an interview with the Young Journalist Club that this measure is under consideration and “will be implemented whenever deemed necessary.”
The Strait of Hormuz, lying between Iran and Oman, spans 160 kilometers in length and narrows to just 33 kilometers at its most constricted point. It connects the Persian Gulf with the Indian Ocean, facilitating the navigation of dozens of large tankers each day, transporting oil and liquefied natural gas from Saudi Arabia, Kuwait, Iraq, the United Arab Emirates, and Iran.
Its geographical configuration—narrow, shallow, and exposed—renders the Strait of Hormuz particularly vulnerable to missile strikes, attacks from Revolutionary Guard speedboats, and drone strikes. Consequently, the West has referred to it for decades as “the most vulnerable point in global energy.”
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