The U.S. fuel supply faces a reckoning as the Iran conflict blocks 20% of the world's oil trade through the Strait of Hormuz — but economists disagree on whether the economy can weather the shock.
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Strait of Hormuz closure cuts 10 million barrels from global supply daily
Crude oil traded at $97 a barrel Monday after Iranian officials withdrew from peace negotiations and vowed to "completely block" the waterway, sending prices up 7%, according to CNBC. The Strait of Hormuz, which normally carries about 20% of global oil supply, has been effectively closed since the U.S. and Israel attacked Iran on Feb. 28, with Tehran retaliating by shutting the chokepoint.
"The U.S. will remain relatively insulated from supply disruptions due to its limited dependence on Middle East exports and its ability to outbid poorer economies," said Megan Peters, an economist at Goldman Sachs, in a May 28 research note. Goldman estimates the oil shock would shave less than half a percentage point off U.S. GDP growth annually, a manageable hit compared with the 1.6% annualized expansion recorded in the first quarter.
Others see a far grimmer outlook. HFI Research, a contrarian investment research firm, warned that oil stockpiles have been depleted to the point where energy markets lack the buffer needed to absorb routine disruptions. "Now that we are a month and a half past the oil market breaking point, we are just going to hit the wall," the firm wrote in a Substack post. About 10 million barrels per day of supply remains unavailable, according to Kpler data, while Asia's seaborne crude arrivals in May totaled 19.47 million barrels per day — down 22% from the pre-conflict average of 24.82 million.
The stakes extend well beyond oil markets. U.S. gasoline prices have surged to $4.32 a gallon from $2.98 before the conflict began, AAA data shows, stretching household budgets and feeding inflation across the economy. South Korea's consumer price index rose 3.1% in May from a year earlier, the fastest pace in 26 months, with petroleum product prices jumping 24.2%, according to the Ministry of Data and Statistics. The Bank of Korea is now expected to begin raising its 2.5% base rate as soon as July, with JP Morgan projecting four quarter-point hikes through early 2026.
The Supply Crunch Deepens
Asia's refiners have so far kept plants running by drawing down commercial and strategic stockpiles while reducing processing rates, but the clock is ticking. Asia imported 63.56 million barrels of U.S. crude in May, a record monthly volume, with Kpler tracking further arrivals of 2.32 million barrels per day in June and 3.07 million in July. Yet even that surge — more than double the average of 1.37 million barrels per day in the three months through February — cannot offset the loss of Middle Eastern supply.
The last time a disruption of this magnitude occurred was during the 1990 Gulf War, when Iraq's invasion of Kuwait removed about 4.3 million barrels per day from markets — less than half the current shortfall. Fitch Ratings assumes the strait will reopen in July, analyst Angelina Valavina said on Bloomberg Television on Tuesday, but if that timeline slips, the consequences could cascade. Less-developed fuel-importing nations such as Bangladesh, the Philippines and Pakistan are most exposed, while U.S. politicians may face growing pressure to curb record crude and fuel exports as domestic inventories dwindle.
This article is for informational purposes only and does not constitute investment advice.
[1] Fitch Ratings Sees Strait of Hormuz Reopening in July[2] Iran Says the Strait of Hormuz Will Stay Closed. What Happens to the US Economy Next?[3] Asia's imports of US crude surge, but can't offset Hormuz losses[4] 94 days of paralysis: The Strait of Hormuz remains choked off[5] Consumer prices hit 26-month high, fueling rate hike expectations
