The uncertainty crisis of the Strait of Hormuz

The Strait of Hormuz is only around 33 kilometres wide at its narrowest point, but few waterways carry greater economic significance. For months, the confrontation between Iran and the United States has transformed this maritime chokepoint into a source of global economic uncertainty. With normal commercial traffic still severely restricted and renewed military hostilities reported at the end of August, the question is no longer simply how markets respond to a disruption, but how long they can continue absorbing it.

The latest developments illustrate the problem. On Monday, a tanker was reportedly struck by three unknown projectiles while travelling eastbound through the Strait, while Iran’s Revolutionary Guard reported intercepting a US MQ-9 drone. Renewed US strikes on Iranian positions have pushed Brent crude back above $90 a barrel, after prices had fallen below $80 earlier in August. This market reaction is significant, but perhaps more important is what lies behind it: uncertainty.

According to UN Trade and Development (UNCTAD), before the military escalation began on February 28, Hormuz carried around 38% of global crude oil trade, 29% of LPG, 19% of LNG and 19% of refined oil products. The waterway is also important for chemicals including fertilisers, while its disruption has repercussions for wider maritime transport and supply chains.

By late August, however, traffic had reportedly fallen by approximately 95%. Between July 15 and August 23, an average of only around five vessels a day passed through the Strait. Much of the remaining traffic has involved tankers operating under naval escort or with tracking systems switched off.

The International Energy Agency’s (IEA) latest assessment, published on August 31, points to mounting pressure. Global oil supply is now forecast to decline by 4.3 million barrels per day in 2026, with increased production elsewhere only partly compensating for losses from the Middle East and Russia. At the same time, global oil demand is now expected to fall by 1.6 million barrels per day, a dramatic reversal from the 850,000-barrel-per-day increase forecast before the war.

Refined products are already feeling the strain. Tight supplies and declining inventories have pushed diesel, gasoline and jet-fuel refining margins to record levels. Although global inventories remain an important buffer, the IEA warns that they are being drawn down rapidly. The longer the disruption persists, therefore, the less comfortable that buffer becomes.

The economic consequences of the crisis cannot be measured simply by today’s oil price. They extend well beyond the energy sector. Higher fuel prices increase transportation and production costs, while higher freight rates, bunker fuel costs and war-risk insurance feed into the price of moving goods. Fertiliser is another critical concern. Higher costs or reduced availability can eventually translate into more expensive food, particularly in countries already vulnerable to food insecurity and high debt.

Moreover, the UN recently warned that disruptions to the Strait of Hormuz, the Bab al-Mandeb Strait, and the Black Sea are effectively choking important arteries of global trade. The result of these crises is higher prices, weaker harvests and greater suffering for vulnerable populations.

Findings from the World Economic Forum highlight that industrial supply chains are also exposed to disruptions involving commodities such as methanol, aluminium, sulphur and graphite. These materials feed into manufacturing, chemicals and clean-energy industries, demonstrating that the Hormuz crisis is not merely an “oil shock” but (yet again) a broader test of the resilience of globalisation.

According to a European Commission Joint Research Centre scenario published in May, Europe appears particularly exposed, as it illustrates how severe a prolonged disruption could be. Assuming Hormuz traffic remains severely restricted through the end of 2026, oil prices could reach around $180 per barrel and gas prices €80 per megawatt-hour in the fourth quarter. Under that scenario, EU GDP growth would fall to 0.7% in both 2026 and 2027, compared with baseline forecasts of 1.1% and 1.4%. Inflation could rise to 3.5% in 2027, compared with 2.4% in the baseline.

These figures are scenario estimates, not forecasts of what will necessarily happen. Yet their importance lies precisely in demonstrating the economic price of prolonged uncertainty. This is where the growing call for a stronger UN role at the centre of mediation and for examining an international maritime mission to monitor shipping, facilitate civilian passage, establish de-escalation mechanisms and protect seafarers becomes economically significant.

Currently framed as part of a solution is the UN task force established in March to protect maritime transit for humanitarian purposes through the Strait of Hormuz, with an initial focus on commercial fertilisers and related raw materials. Such a mechanism would not, by itself, resolve the underlying US-Iran confrontation. Nor would it remove the need for diplomacy between the parties. But it could be a practical first step toward restoring predictability, which markets desperately need.

In a global economy built on interconnected supply chains, certainty has become an economic commodity in its own right. And the longer Hormuz remains uncertain, the more expensive that commodity becomes.