How a Strait of Hormuz Closure Could Shock Global Energy Markets and the World Economy

Wood Mackenzie’s analysis suggests an even larger potential shock. The firm estimates that more than 11 million barrels per day of Gulf crude and condensate supply could remain curtailed in a severe disruption scenario. Under its worst case, oil prices could surge toward $200 per barrel.

Such a spike would ripple through transportation, manufacturing, and food supply chains worldwide.

Three Scenarios for the Crisis

Wood Mackenzie outlines three possible paths depending on how quickly the strait reopens and geopolitical tensions ease.

1. Quick Peace
A diplomatic breakthrough allows shipping to resume quickly. Oil prices fall back toward normal levels and the global economy largely returns to its previous trajectory.

2. Summer Settlement
Negotiations drag on for months, leaving the strait largely closed into late summer. Energy markets remain tight, prices stay elevated, and global growth slows significantly.

3. Extended Disruption
The crisis lasts far longer, creating a persistent supply deficit. Oil prices could approach $200 per barrel and the resulting inflation shock risks pushing major economies into recession.

LNG and Natural Gas Markets Also Tighten

The strait is not only critical for oil. It is also a major route for LNG exports from Gulf producers.

If shipments stop, the effects spread quickly across gas and electricity markets—especially in countries dependent on imported LNG. Data from the U.S. Energy Information Administration shows that after the disruption began, European benchmark LNG prices rose to about $14.80 per MMBtu, roughly 35% higher than before the closure.

Asian LNG prices rose even more sharply, reflecting the region’s heavy dependence on Middle Eastern LNG cargoes.

The result is a chain reaction: higher gas prices raise electricity costs, which then increase costs for industry, transportation, and households.

Inflation and Recession Risk

Large oil shocks historically slow economic growth while pushing inflation higher—a difficult combination for policymakers.

Higher fuel costs affect nearly every sector of the economy:

• Transport and aviation face immediate cost increases.
• Manufacturing and chemicals see higher energy inputs.
• Food prices rise due to more expensive fertilizer, fuel, and logistics.

If prices remain elevated long enough, central banks may struggle to balance inflation control with economic growth. That dynamic is why analysts warn that a prolonged closure could push the world economy toward a downturn comparable in severity to the 2008 crisis.

Shipping and Insurance Costs Amplify the Shock

Even before physical supply shortages fully materialize, shipping disruptions can raise delivered energy prices.

Maritime insurers have expanded high‑risk designations across parts of the Persian Gulf, increasing war‑risk premiums and tightening insurance capacity for vessels operating in the region.

In some cases, premiums for tanker voyages have risen dramatically—from less than 1% of vessel value before the crisis to between about 1% and 7.5%, adding millions of dollars to a single voyage.

Higher insurance costs discourage shipping and increase the price buyers must pay for delivered oil and LNG.

Which Regions Are Most Exposed

The economic impact would not be evenly distributed.

• Asia: Highly dependent on Gulf oil and LNG imports, making it particularly vulnerable to supply disruptions and price spikes.
• Europe: Less directly exposed but still affected through global oil pricing and competition for LNG cargoes.
• United States: Somewhat insulated on natural gas due to domestic production, but still exposed to global oil price shocks and inflation.

Even energy‑exporting countries in the Gulf could suffer economically if export volumes remain blocked despite higher global prices.

The Bottom Line

The Strait of Hormuz remains one of the most important—and vulnerable—energy chokepoints in the global economy. A prolonged closure would remove millions of barrels of oil and major LNG volumes from global markets, potentially pushing oil prices into the $130–$200 range while tightening gas markets and raising shipping costs.

If the disruption persists through the summer or longer, analysts warn that the resulting inflation shock and supply shortages could tip the global economy toward a recession comparable to the financial crisis era.