economy
How high could oil and gas prices go if the Strait of Hormuz remains closed?
President Trump's comments to reporters on Tuesday that he expects the U.S. to end its war with Iran in two or three weeks is buoying investors by easing global oil prices and boosting stocks. Yet such optimism is certain to fade quickly unless Iran agrees to reopen the Strait of Hormuz soon, according to economists, who warn that crude prices could continue to soar even if the Trump administration moves to wind down military operations in the region.
TL;DR
- Investor optimism regarding the end of the Iran war is contingent on the reopening of the Strait of Hormuz.
- Economists warn that crude oil prices could reach $150-$200 per barrel if the strait remains closed.
- U.S. gasoline prices have already risen and could exceed $4 per gallon if the strait stays shut.
- Approximately 70% of ships transiting the Strait of Hormuz have been linked to Iran since the war began, reducing daily oil flow by up to 16 million barrels.
- A prolonged closure of the strait would drive oil prices well beyond recent highs due to inelastic demand and limited substitutes.
- Even if U.S. forces withdraw, geopolitical and financial risks suggest a return to pre-war market conditions is unlikely.