Iran’s plan to close the Strait of Hormuz threatens a “stagflation shock” similar to Russian invasion
a Temporary ceasefire Announced this evening by President Donald Trump — but not yet verified by Israel or Iran — may have changed the course of the global market that had been staring at a potential oil shock and rising inflation a few hours ago.
Iran’s parliament voted on Sunday to close the Strait of Hormuz, a waterway important to the world’s oil trade. The surprising vote and subsequent ceasefire have sharply reassured the global importance of the narrow channel between Iran and the Arabian Peninsula, taking on 20% of the world’s oil production.
The move, first reported by Iran’s state-run news television, comes after the US attacked Iran’s nuclear site on Sunday and then retaliated by attacking a US military base in Qatar on Monday. The oil market slipped 4%, or $3 per barrel on Monday, but analysts expected a sharp price rise if the country’s top security board approved the strait closure.
Plans that are expected to close the channel are unlikely to happen even before the announcement of a ceasefire, but could have a major impact on European and British markets, and even the slightest disruption in the waterway could already shock the US economy in preparation for an increase in inflation. A slight rise in oil prices due to Iran’s retaliation in the region could even affect the way the Federal Reserve navigates rate cuts for the rest of the year, analysts say.
“It could turn into a male-dog-like stag that we saw in 2022 after Russia’s invasion of Ukraine (closing the Strait of Hormuz),” said Susana Cruz, research analyst at Panmure Liberum, a UK investment banking company. luck.
If Iran closes its waterways, Cruz expects oil prices shocks to increase US headline inflation. Another “possible” is that, while the straits will not close, if oil prices rise 20% in the third quarter, half the US inflation rate will increase, up 0.4% in the eurozone and 0.3% in the UK, Cruz and her research team predict. This could force the Fed to hold interest rates. This is a strategy Trump has adopted since December despite pressure to cut interest rates.
Iran may not have the ability to back up the threat, even if they move, experts say.
“(Iran) makes noise about closing the Strait of Hormuz,” said Paul Teis, a senior fellow at the National Center for Energy Analysis. luck. “It’s unclear if they have the ability to do that.”
In line with Tice’s reasoning, Brent crude prices Edged As traders watch the continuous flow of tankers in the Strait of Halmuz, they will hover about $70 by Monday afternoon, starting at $78.97 open. Trump begged the oil sector to keep the prices of today’s truth socially low postwarning readers: “I’m watching! You’re playing directly in the enemy’s hands. Don’t do that!”
But even a temporary 20% rise in oil prices could affect the outlook from central banks supporting “the impact of inflation already rising from tariffs,” Cruz warned.
“If there’s an added oil shock from oil prices, we’re definitely not going to see the Fed’s reduction rate for the rest of the year,” Cruz said. “(Central Bank) We need to make sure that this shock is actually temporary and that we don’t make the same mistakes we made in 2022.
The scenario for a 20% rise in oil prices peaked in the third quarter of this year and disappears in the third quarter of 2026, Cruz said. Panmure Liberum estimates that in this scenario, the US stock market will fall by 5% to 10%.
Former chief economist Ethan Harris, despite the US facing “a combination of stickiness, high inflation and (a) a decline in growth economy.” Bank of AmericaI said luck“I am far more concerned about the trade war than I am frankly about the oil price shock.”
Harris holds a popular view Economist We look forward to seeing US consumers starting to see rising tariff fuel prices over the summer and seeing the growing CPI report in the coming months.
His Monday NewsletterHarris, u, s. The economy is “more willing” to view the shock of oil prices as temporary. He added that the US is far less dependent on oil. Imports during the shock of oil prices caused by flashpoints like the 1990 US-Iraq War have not relied on oil as the country becomes more “service-oriented.”
“As a result, most empirical studies suggest that a $10 (per barrel) increase in oil prices would result in an increase of less than 0.1% GDP,” writes Harris.
Goldman Sachs analysts have defined value as a rise in crude oil prices as it closed at $66.9/bbl on June 10.
In a report released Sunday, Goldman analysts said a scenario in which the oil volume of about 20 million barrels flowing through the Strait of Hormuz fell 50% for a month, and another 10% for 11 months could reach Brent prices at $110/bbl. The risk premium per barrel is just above $25.
Harris says there’s no magic number” to predict an extreme oil crisis, but the price per barrel should reach “over $100” to threaten the recession.
The Islamic Republic’s oil exports have fallen from about 2.5 million barrels per day to just 150,000 barrels after its outbreak with Israel. Israeli Heyom It has been reported.
Even if the straits are closed in the future, Macquarie Bank strategists are looking at workarounds.
“The strait closure will not be completely insurmountable as some of the oil loaded in the Gulf terminal could be shipped overland,” the strategist wrote in a memo. “However, the associated risk is Iran’s attack on local oil production sites.”
20% of the world’s oil production flows through the Strait of Hormuz, and experts say closing the waterways will have a major impact on Iran’s economy. One of the largest exports in the country.
“They’re going to be hurting themselves,” said Tice of the NCEA.