Strait of Hormuz Blockade: Tariffs Unresolved, Stagflation Looming

The blockade of the Strait of Hormuz, a crucial energy transport route, has led to rising oil and natural gas prices, posing a significant risk to the global economy.

If the conflict and unrest between the US, Israel, and Iran prolong, stagflation—high inflation and low growth—will become a reality. The global economy, already impacted by the Trump administration’s tariff policies, will face new challenges.

The Strait of Hormuz is a vital oil transport hub, handling 20% ​​of global consumption. The Iranian Revolutionary Guard has notified shipping companies of a ban on navigation in the Strait of Hormuz. Some analysts believe this is retaliation for the attacks by the US and Israel. Due to concerns about security, many ships have currently suspended operations.

On March 2nd, West Texas Intermediate (WTI) crude oil futures rose to $75 per barrel, an increase of approximately 10% compared to the closing price of $67 on February 27th before the attack on Iran.

Economists at Barclays Bank in the UK predict that Brent crude oil futures, which were around $70 a barrel before the attacks, will soon rise to $100. On March 1, OPEC and other like-minded countries reached an agreement to increase production starting in April, but economists believe the risks are “significant and the effects won’t be immediate.”

If the strait remains chaotic, the surge in liquefied natural gas (LNG) prices is also a concern. According to MarineTraffic, a ship information analysis tool from the European research firm Kpler, only two LNG carriers passed through the Strait of Hormuz between February 28 and March 1, a decrease of about 80% compared to February 26-27. “18.5% of global LNG supply is stuck in the Gulf.” Crude oil carriers decreased by about 50%, down to 28.

In addition to the strait blockade, energy facilities have also experienced disruptions. On March 2, a Qatar Energy Company facility in the industrial city of Ras Lafan was damaged, forcing the shutdown of liquefied natural gas (LNG) and related byproducts production. Qatar claims its facilities were attacked by Iranian drones.

Ras Lafan, with an annual capacity of 77 million tons, is the world’s largest LNG base. Following the report, the benchmark natural gas price in Europe, the Dutch TTF, briefly rose to €47.85 per megawatt-hour, a 47% increase from the previous weekend’s closing price.

If the tight supply and demand situation persists, electricity prices in Japan, where inventories are only sufficient for a few weeks and have limited buffer space, could rise accordingly. Goldman Sachs predicts that if the strait blockade continues for two months, benchmark natural gas prices in Europe and Asia could rise to $35 per 1 million BTU (British thermal units), more than three times the price before the attack.

Michel Brouhard, head of policy and geopolitical risks at Kpler, is wary of a scenario that could develop into a protracted regional conflict while Iran maintains its ability to attack its neighbors. He points out, “Iran is not a regime that ends with the removal of a leader. The fighting could last a week or longer.”

On March 2, US Defense Secretary Hergsays denied sending ground troops to Iran but indicated that additional troops would be deployed to the Middle East. Three Japanese shipping companies—Nippon Yusen Kaisha (NYK), Mitsui O.S.K. Lines (MOL), and Kawasaki Kisen Kaisha (KS)—will continue to suspend sailings through the strait.

Generally, if the global economy slows and demand weakens, commodity prices, including crude oil, will face downward pressure. However, high oil prices caused by geopolitical factors will push up inflation rates while weakening consumption and investment, increasing the likelihood of an economic recession.

In June 2025, the year of the US attack on Iranian nuclear facilities, estimates from Oxford Economics show that if crude oil prices rise to $115, the US inflation rate will reach 5.5%, and the Eurozone inflation rate will rise to 3.5%.

The global economic growth rate in 2026 will fall to 2.0%, a decrease of 0.4 percentage points. This will not only impact Western countries such as the US, Europe, and Japan, but also China, a major oil importer.

Stagflation is difficult to combat because central banks such as the Federal Reserve (FRB) find it difficult to quickly lower interest rates to address a deteriorating economy. Rising gasoline prices will increase transportation costs, impacting overall prices, and premature interest rate cuts could lead to persistently high inflation.

On March 1st, the interest rate futures market also indicated an approximately 80% probability that the Federal Reserve would postpone a new round of interest rate cuts until the April Federal Open Market Committee (FOMC) meeting. Some analysts believe that no action will be taken before Fed Chairman Powell leaves office in May.

If gasoline prices rise, directly impacting the cost of living for Americans, the Trump administration is likely to face headwinds in the November midterm elections.