How a war in Iran could hit oil prices, inflation and global growth

Everything hinges on whether energy flows through the Strait of Hormuz continue or get choked off.

The global economy has absorbed a string of shocks over the past year, from trade tensions to political volatility. A widening war involving Iran is different for one reason: oil.

Roughly one in five barrels of the world’s oil passes through the Strait of Hormuz, the narrow shipping lane along Iran’s southern coast. If traffic through that corridor is disrupted for more than a few days, the economic consequences could move quickly from energy markets to household budgets and central bank decisions, the Financial Times reported.

Two oil scenarios

Analysts broadly see two possible paths. In the worst case, there is a sustained disruption to tanker traffic through Hormuz. That would represent a direct shock to global supply. Brent crude, already hovering in the low to mid 70s per barrel, could surge past 100 dollars and potentially higher if shipping insurers pull back or vessels avoid the route.

A more limited scenario would involve sanctions or strikes curbing Iran’s own exports without a full closure of the Strait. Iran produces a little under 3.5 million barrels a day, less than 3 per cent of global supply. In that case, oil might rise toward 80 dollars a barrel, painful but manageable if other producers increase output.

OPEC+ has already signalled a modest production increase, an attempt to calm markets before panic sets in.

What USD 100 oil would mean for the US

The United States is far less dependent on imported energy than it was two decades ago. Domestic production has surged, and imports account for a much smaller share of total consumption.

But US gasoline prices still track global benchmarks. If oil climbs to USD 100 and stays there, economists estimate inflation could jump from the mid 2 per cent range to above 4 per cent. That would complicate plans by the Federal Reserve to cut interest rates later this year.

Higher fuel costs would land directly on consumers already sensitive to living expenses. Every sustained USD 10 rise in oil is estimated to shave roughly 0.1 to 0.2 percentage points off growth over the following year.

Asia and Europe feel the squeeze

Asia is especially exposed. More than 80 per cent of crude and liquefied natural gas moving through Hormuz heads to Asian markets, including China, India, Japan and South Korea. A major disruption would raise input costs across manufacturing-heavy economies.

Europe would feel the impact through both oil and liquefied natural gas prices. Although eurozone inflation is currently below target, a sharp energy spike could complicate policy decisions at the European Central Bank and the Bank of England, especially if markets become volatile.

Markets, confidence and the dollar

Beyond energy, the broader risk is confidence. Financial markets are already navigating trade disputes, political uncertainty and technology sector volatility. A prolonged Gulf conflict could push investors toward safe-haven assets, including the US dollar, which historically strengthens during oil shocks.

The global economy has shown resilience to geopolitical flare-ups before. The key question now is duration. A brief disruption may cause only a temporary spike in prices. A prolonged conflict that chokes energy flows would test that resilience far more severely.