Hormuz Is Already an Energy Shock. The Question Is Duration.

The reassuring story about an Iran war used to be that everyone had too much to lose by letting it become an energy crisis. Iran needed exports. Gulf states needed the sea lanes. China, India, Europe and the United States all needed the Strait of Hormuz open. Insurers could charge more. Navies could escort ships. Strategic reserves could bridge the gap.

That story is now too comforting. I do not think the world is facing a rerun of the 1973 oil embargo, when Arab oil producers cut supply and oil prices nearly quadrupled from $2.90 a barrel before the embargo to $11.65 in January 1974, according to the Federal Reserve’s history of the shock¹³. But I also do not think this is just a geopolitical risk premium. The Iran conflict has already become an energy shock. The honest question is whether it stays severe but manageable, or becomes sustained enough to bleed into inflation, food costs, aviation, gas markets and Russia policy.

Start with the geography. The Strait of Hormuz is the narrow sea passage between Iran and Oman that connects the Persian Gulf to the Gulf of Oman and the open ocean. Before the war, it was not merely an oil route. It was one of the load-bearing beams of the global economy. The International Energy Agency says nearly 20 million barrels a day of oil moved through Hormuz in 2025, about a quarter of world seaborne oil trade, while LNG, or liquefied natural gas shipped by tanker, from Qatar and the United Arab Emirates through the Strait represented about 19 percent of global LNG trade (IEA³). The same IEA explainer says about 93 percent of Qatar’s LNG exports and 96 percent of the UAE’s LNG exports transit Hormuz, and that there are no alternative routes to bring that Qatari or UAE LNG to the global market (IEA³).

Oil has more escape hatches than gas, but not enough. Saudi Arabia and the UAE can move some crude by pipeline outside Hormuz, including Saudi routes to the Red Sea and the UAE route to Fujairah, yet the IEA estimates available bypass capacity at only 3.5 million to 5.5 million barrels a day, and says the logistics for rerouting large volumes have not been robustly tested (IEA³). That matters because the U.S. Energy Information Administration’s May chokepoint data show total oil flows through Hormuz fell from 20.7 million barrels a day in the fourth quarter of 2025 to 14.6 million in the first quarter of 2026, while LNG flows fell from 10.1 billion cubic feet a day to 7.3 billion cubic feet a day (EIA Global Energy Security Data²). A system that loses roughly six million barrels a day of flows through its most important chokepoint has not “absorbed” the war. It has begun rationing the damage.

The first rationing happens in plumbing, not at the pump. War-risk insurance is the extra cover ships buy when they sail through conflict zones. It does not need to disappear completely to change behavior. The Lloyd’s Market Association said on March 23 that marine war insurance remained available for vessels wishing to transit Hormuz, but it also said reduced traffic was being driven by safety concerns rather than a simple lack of cover (Lloyd’s Market Association⁷). That distinction is crucial. A tanker owner, crew, lender or charterer can decide that a voyage is too dangerous or too expensive even when an underwriter is technically willing to write a policy.

The price of that fear is no longer theoretical. Howden Re’s March analysis said the effective Hormuz closure put risk premia across marine war, energy, aviation, political violence and trade credit into flux, while its marine insurance table put current war-risk cover at 2 percent to 3 percent of vessel value versus roughly 0.10 percent to 0.125 percent before the conflict in stressed cases (Howden Re⁸). Reuters reported that airlines across Europe, Asia and the Middle East cancelled or rerouted flights to avoid closed or restricted airspace, lengthening journeys and raising fuel costs after the February 28 U.S.-Israeli strikes and Iranian retaliation (Reuters via Investing.com⁹). This is how an energy shock spreads before households see every bill: insurers reprice, shipowners wait, airlines reroute, refiners cut runs, and importers bid against each other for replacement cargoes.

The buffers are real. They are also being spent. A strategic petroleum reserve is government-controlled emergency oil held for supply disruptions. The IEA’s 32 member countries agreed on March 11 to make 400 million barrels of emergency oil available, the largest release in the agency’s history, after the conflict impeded Hormuz flows and pushed exports of crude and refined products to less than 10 percent of pre-conflict levels at that moment (IEA⁵). The EIA estimates the U.S. Strategic Petroleum Reserve held about 409 million barrels on April 10, China’s strategic and emergency-relevant commercial stocks were nearly 1.4 billion barrels as of December 2025, Japan held 263 million barrels in government inventories, and OECD Europe held about 179 million barrels in government inventories (EIA⁶).

Those numbers are impressive, but they also reveal the limit. Emergency oil can replace some missing barrels for some period. It cannot create Qatari LNG cargoes that cannot leave port, and it cannot instantly restore tanker confidence. It can smooth a short shock. It cannot substitute for a sea lane that normally carries around one-fifth of global oil and gas energy trade.

The EIA’s May forecast makes the same point in more polite language. It says global oil markets are in heightened volatility because Hormuz has been effectively closed to shipping traffic since military action began on February 28, and that Brent averaged $117 a barrel in April, $46 above February’s average (EIA Short-Term Energy Outlook¹). The agency expects global inventories to fall by an average of 8.5 million barrels a day in the second quarter of 2026, pushing Brent to around $106 in May and June, before prices fall to $89 by the fourth quarter if traffic gradually resumes in June and shut-in production returns (EIA Short-Term Energy Outlook¹). That is the key conditional. The forecast is not “the world is fine.” The forecast is “the world is fine if the Strait reopens soon enough.”

The strongest counterargument is that modern energy markets are more flexible than old ones. That is true. The IEA’s May Oil Market Report says producers outside the Middle East have raised output, Atlantic Basin crude exports have increased by 3.5 million barrels a day since February, refiners have reduced runs, Chinese seaborne crude imports fell by 3.6 million barrels a day from February to April, and end users are cutting consumption (IEA Oil Market Report, May 2026⁴). That is what adaptation looks like. The World Bank likewise says emergency reserves and limited output increases have partly alleviated shortages, while warning that oil markets will stay tight if flows face lasting impediments (World Bank¹⁰).

But adaptation is not the same as painless absorption. When demand falls because prices spike, flights are cut, petrochemical feedstocks are scarce, and Asian refiners cannot source normal crude slates, the shock has simply moved from supply to activity. The first costs will fall on Asian importers most dependent on Gulf crude and LNG, because the IEA says China, India and Japan are the main destinations for crude leaving Hormuz and Asia receives most Qatari and UAE LNG through the Strait (IEA³). Airlines and shippers pay next through fuel, insurance and longer routes. European consumers are less directly exposed to Hormuz oil, but LNG is globally priced at the margin, so Asian bidding for replacement cargoes can still push European gas and power prices higher. Lower-income households everywhere feel the tail end through fuel, transport and food.

There is also an awkward geopolitical beneficiary. The Russian oil price cap is the G7-led rule that allows Western shipping, insurance and finance services for Russian oil only if the oil is sold at or below a set cap. Treasury says the point is to keep Russian oil flowing while forcing it to trade at a discount to Brent, the global benchmark (U.S. Treasury¹¹). Higher Brent prices therefore give Moscow more room to earn revenue unless sanctions enforcement, buyer discounts or volume losses offset the benchmark increase. The constraint is real: the IEA said in February that Indian imports of Russian crude fell to 1.1 million barrels a day in January, down from a 2025 average of 1.7 million, as customers faced U.S. and EU sanctions pressure (IEA Oil Market Report, February 2026¹²). Still, a higher global oil price works against the West’s revenue-squeezing strategy.

My view is blunt: the world can absorb a short Hormuz shock only by using emergency tools, paying higher prices and destroying some demand. It cannot absorb a prolonged Hormuz disruption without a sustained global energy shock. That shock may not look like the 1970s, with gas lines and a uniform consumer crisis across the West. It will look more uneven: Asian LNG stress, aviation pain, refinery dislocation, petrochemical shortages, higher freight and insurance, and a stubborn inflation pulse that central banks cannot drill or convoy away.

The indicator I would watch is not a ceasefire headline. It is six consecutive weeks of hard flows. If Hormuz oil and LNG shipments return above 90 percent of their fourth-quarter 2025 levels, war-risk premiums fall close to prewar levels, no new emergency stock releases are announced, and Brent moves below $90 without a collapse in demand, the system will have bent without breaking. If flows stay near first-quarter levels or worse into July, I think the market will stop treating this as a shock to be bridged and start treating it as the new inflationary floor.