Tensions between the U.S. and Iran over the Strait of Hormuz have triggered significant volatility in global energy markets. On March 23, ahead of the deadline set by former U.S. President Donald Trump for Iran to reopen the strategic waterway, American officials claimed that "very good and productive dialogue" had taken place with Iran and would continue through the weekend. Iran, however, firmly denied any such talks, asserting that its position on the Strait of Hormuz and conditions for ending the conflict remained unchanged.
Earlier, on March 21, Trump had declared via social media that if Iran failed to fully reopen the strait within 48 hours, the U.S. would target and destroy power plants across Iran. In response, Iran’s Khatam al-Anbiya Central Headquarters warned that any attack on its fuel and energy infrastructure would make all U.S. and allied energy facilities, IT systems, and desalination plants in the region potential targets.
Amid the conflicting statements and unresolved status of the strait, international oil prices fell sharply on March 23, with WTI crude dropping as much as 12.96% to $85.50 per barrel and Brent crude declining 13.28% to $92.275 per barrel. However, prices later rebounded on further developments, with Brent climbing back above $100 per barrel and WTI trading at $92.30 by the time of reporting. Spot gold also retreated to around $4,333 per ounce.
Oxford Economics revised its baseline scenario, now assuming the Strait of Hormuz will remain impassable until May, with heightened geopolitical tensions continuing to disrupt trade through the second and third quarters. The institute significantly raised its oil price forecast, projecting Brent crude to average $114 per barrel in the second quarter. It anticipates that half of the strait’s pre-conflict traffic capacity will resume by May, with trade disruptions easing slowly through the remainder of 2026.
How likely is a rapid drop in oil prices? Reports citing an Israeli official indicated that the U.S. has set April 9 as a target date to end hostilities with Iran, with talks expected to take place in Pakistan later in the week. Iran rejected the claim, with a senior official stating that Trump has no authority to set conditions or deadlines. The official added that while messages have been exchanged via Egypt and Turkey to ease tensions, the U.S. has not accepted Iran’s core demands: compensation for losses and acknowledgment of violations. The option of closing the strait or deploying naval mines remains part of Iran’s contingency plans.
Under a scenario where an immediate ceasefire leads to the strait’s reopening, financial services firm Ebury estimates that shipping could resume within two weeks if a truce is reached by the end of March. However, this outcome is considered highly unlikely, with less than a 10% probability. Ebury’s Market Strategy Director Matthew Ryan noted that in such a case, oil prices could fall 30% or more within days—a historically plausible move. The extent of the decline would depend on whether the strait reopens partially or fully, with the latter unlikely to be achieved by U.S. military action alone.
A second scenario, deemed moderately likely, involves a rapid de-escalation with the strait reopening within four to five weeks. In this case, oil prices would retreat significantly from recent highs. If the strait reopens fully or nearly fully, the supply shock would be temporary. Brent crude could stabilize between $80–$90 per barrel, aided by emergency stockpile releases by the International Energy Agency, which could cushion the impact for three to four weeks. Ryan pointed to the Gulf War in 1990–1991 as a historical example, when oil prices doubled by year-end but fell 33% in a single day after the conflict ended, returning to pre-war levels by mid-1991.
Macroeconomic impacts in this scenario would be mild: inflation might rise by 0.1–0.2 percentage points, with limited effect on global growth and no additional recession risk. Central banks would likely avoid overreacting, with the European Central Bank and Bank of England holding rates steady or tightening slightly, while the U.S. Federal Reserve could cut rates in the second half of the year.
Oxford Economics cautioned that although the U.S. may be delaying strikes to pursue a deal—a potential first step toward de-escalation—significant uncertainty remains. It is too early to assume the strait will reopen sooner than its baseline May projection. Currently, about 7 million barrels per day of the strait’s typical 18 million bpd oil flow are being rerouted via pipelines to Saudi Arabia’s Yanbu port and the UAE’s Fujairah port. The institute estimates average supply disruptions of 7.5 million bpd in the second quarter, warning that alternative routes are vulnerable to attack, which could trigger sharp price spikes.
How high could oil prices climb? If the strait remains closed for one to three months—a scenario Ryan assigns a 30–35% probability—oil prices could exceed recent highs of $118 per barrel and sustain levels between $120 and $150. IEA stock releases would only offset three to four weeks of disruption. Globally, inflation could rise by 0.5–1.0 percentage points due to energy and transport costs, with secondary effects and unanchored inflation expectations becoming risks later. Global GDP growth could slow by 0.2–0.5 percentage points, with Europe and Asia most exposed. The ECB and BoE may hike rates, while the Fed holds steady, amplifying downside risks.
Trade flows from the Middle East to Asia and Europe would drop sharply, with seaborne exports of oil and LNG falling 60–75%. Importers would turn to alternatives: U.S. crude and LNG exports to Asia could rise 30–50%, and Brazilian crude exports to India and Europe could increase 25–50. Rerouting via the Cape of Good Hope would cause delays, adding upward price pressure.
In a worst-case scenario—a six-month closure or limited reopening, also deemed moderately probable—Brent could reach $150 per barrel or higher, pushing major economies into stagflation. Global inflation might rise 1.0–1.5 percentage points, with full secondary effects such as wage-price spirals and rising food prices. Growth would suffer significantly, especially in net oil importers like the eurozone, UK, and Asia, with a possible recession in the eurozone. Central banks would face a dilemma but likely prioritize inflation control with aggressive rate hikes.
Long-term closure would severely disrupt Middle Eastern energy exports to Asia and Europe, as well as non-energy exports such as fertilizers, petrochemicals, and electronics. Alternative trade flows would accelerate, including U.S. and Canadian fertilizer exports and U.S. helium shipments. Beneficiaries would include non-Gulf energy producers, defense firms, renewables, and shipping bypassing the strait, while airlines, automakers, utilities, Asian manufacturing, and petrochemicals would suffer. Semiconductors and AI hardware face risks—Qatar produces one-third of the world’s helium, a key coolant for chip production.
Oxford Economics expects oil prices to decline in the second half of the year as additional supply comes online and disruptions ease, projecting Brent to end the year at $78 per barrel—still $20 higher than its February forecast.