The economic impacts of the Iran war and Iran’s closure of the Strait of Hormuz already reach around the world, according to an expert.
Iran’s blockade of the strait, a narrow waterway through which ordinarily passes about a fifth of the globe’s oil and natural gas supplies, already has historic consequences for consumers, says David Bieri, a Virginia Tech economic expert.
“Global crude prices spiked to nearly $120 a barrel about a week after the war began before easing to around $100, which is still up more than 40 percent from the pre-war level of $70,” he says.
“Gasoline prices are averaging close to $4 per gallon, up nearly 80 cents from a month ago, and diesel is just under $5 a gallon—just over $1.30 higher than last month.”
Bieri emphasizes that the impacts resonate more widely than prices at the pump.
Here, he answers questions on the topic and expands on those impacts:
What are the overall effects of shutting down the Strait of Hormuz?
The strait is not merely disrupted—it is, for practical purposes, effectively halted, amounting to the biggest oil supply disruption in history. There is no alternative route at remotely comparable scale.
What makes the current situation structurally distinct from prior oil shocks is the simultaneous liquefied natural gas (LNG) disruption—the strait carries not just oil but also fertilizer access and high-tech supply chains. All of it compounding the crude shock in ways the worldwide 1973 or 1979 oil crises never did.
How might this change economic relations in the Middle East?
Iran has done something that even the most pessimistic Gulf security analysts did not anticipate: In retaliation for the joint US-Israeli strikes, Tehran launched an unprecedented barrage of missiles and drones, hitting energy infrastructure, civilian airports, and emblematic luxury districts—for the first time in history attacking all six Gulf Cooperation Council countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
The most consequential single action—Iran hit Qatar’s key LNG facility, cutting about 17% of output for as long as five years, the CEO of QatarEnergy has said.
The physical disruption is compounding the shock, as oil and gas storage facilities in the Gulf are rapidly filling, forcing oilfields in Iraq and Kuwait to cut oil production, and after a ceasefire is reached, field restart timelines are measured in weeks to months. The fiscally distressed economies of Egypt, Pakistan, Jordan, and Lebanon are facing sharp adjustment costs with thin buffers.
Can the Federal Reserve do anything to fight inflation driven by the strait closure?
The US is the world’s largest oil producer today, a fundamentally different position than 1973 or 1979—but the monetary policy dilemma is identical to every prior shock in the historical record. The Fed cannot simultaneously fight supply-driven inflation and support growth with a single interest rate instrument.
At its meeting last month, the 11-to-1 decision was to hold the federal funds rate at 3.5–3.75%, and Chairman Jerome Powell’s framing of the oil shock as “a one-time increase in the price of a good” suggested the Fed is praying for a short war without directly saying so. The Fed’s credibility in navigating this crisis, under a chair whose tenure ends in May and whose successor has yet to be confirmed, may be the most consequential domestic economic variable of 2026.
What are some of the most unexpected economic consequences?
The simultaneous “unsanctioning” moves—on both Iranian and Russian crude—are the most revealing and underreported dimension of the administration’s energy response, and together they constitute a geopolitical own goal of the first order. On the Iranian side, the geopolitical irony is stark: the United States launched the largest military operation in the Middle East since 2003 and within two weeks was replenishing the war chest of the country it has spent three years trying to economically isolate. Meanwhile, the Iran shock, combined with sanctions relief, has handed Moscow a financial lifeline to counter its steep budget deficit it could not have engineered on its own. As Putin’s Kremlin put it with characteristic precision, “our interests coincide.”
Source: Virginia Tech
