Oil, Inflation, and the Dollar: The Global Impact of the Hormuz Crisis

The recent escalation involving Iran has once again drawn global attention to the Strait of Hormuz.  This narrow stretch of water plays a critical role in the modern energy system, linking the Persian Gulf to the open ocean via the Gulf of Oman. The U.S. Energy Information Administration (EIA) reports that this maritime corridor carries about 20.9 million barrels per day[1] in Q1 2025. This means it’s responsible for about 20% of global petroleum liquids consumption[2].

Prior to February 28^th, the Joint Maritime Information Center reported that roughly 138 vessels passed through this strait per day[3]. Since then, publicly reported tracking data indicates that less than 100 vessels have crossed as of March 18^th. Mainly crude oil tankers and Liquefied Petroleum Gas / Liquefied Natural Gas carriers (LPG / LNG)[4].

History of Strait of Hormuz

For centuries, the Strait of Hormuz has played a vital role in regional and global trade, long before becoming central to the modern energy system. In ancient and medieval periods it served as a maritime link. It facilitated the trade of goods between Persia, India, and the broader Indian Ocean region. From the 1500s to 1800s, its strategic importance expanded as European powers sought to control key sea routes in the region. However, the strait became globally critical after World War II, with the surge of Persian Gulf oil production, the rise of supertankers and globalization of energy markets[5]. Given its convenient geographic location, along with the cost efficiency of maritime transport and the global reliance on Gulf oil exports, it remains one of the most important chokepoints in the economy even today[6].

Crude Oil

The largest commodity in transit through the Strait of Hormuz is crude oil. The disruption has caused a surge in oil prices, with Brent crude oil increasing as U.S. / Iran tensions continue to escalate. In early March, prices moved from the low $80s per barrel to over $100 by March 15^th. This reflects both the impact of the recent collapse in tanker traffic and the market’s expectation of prolonged constraints on Gulf exports.

Impact on Gulf Oil Exports / Imports

Gulf exporters have been hit hard by the disruption. Several countries, including Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates (UAE), have been forced to cut production or shut in output altogether. In some cases, because storage filled up when exports stalled. Estimates suggest that regional production has fallen by millions of barrels per day. This represents one of the largest supply disruptions in modern oil market history[7]. Saudi Arabia and UAE are rerouting oil volume through alternative pipelines via Red Sea terminals. Despite mitigation efforts, these alternative operations are more costly and cannot fully replace seaborne volumes. This will still result in a significant loss of export revenue[8]. Lower revenues, combined with higher costs, put a fiscal strain on these oil-dependent economies. This is especially true for countries that lack access to alternative transportation routes, including Iraq and Kuwait.

In addition to the loss of revenue from halted production, oil and gas production facilities are increasingly being targeted. Drone strikes on the Shah gas field and the Fujairah Oil Industry Zone have damaged their infrastructure. This, in turn, led to the suspension of oil production in the UAE region. Recent strikes on Iran’s South Pars natural gas field have triggered retaliatory attacks. This has affected energy infrastructure across the region, particularly in Qatar and Kuwait[9]. The events following the March 18^th attacks show that long-term risks are likely to grow as the war continues to escalate[10].

The graph below shows countries exporting oil through the Strait of Hormuz. It also shows daily volume averages prior to February 28^th [11]:

Many Asian countries, including China, India, Japan, and South Korea get a large share of their crude and gas from the Persian Gulf. This makes them more vulnerable to elevated prices and supply uncertainty[12]. While China does have limits on how much they can raise the price of retail oil[13], as of March 10^th the price of gasoline was increased by $100.46 (695 Yuan) per metric ton. This is the highest increase since March 2022[14]. India imports more than 60% of its LPG, of which the majority (about 85-90%) passes through the Strait of Hormuz. The Indian government has begun regulating LPG supply. This includes increasing domestic production and prioritizing LPG for hospitals and schools[15].

The graphic below shows the top five importing countries, along with reported reserves[16]:

Rising Oil Prices and Effects on Inflation

The U.S. / Iran war directly affects Gulf exporters and countries that rely heavily on imports from the Strait of Hormuz. It also indirectly impacts the U.S. and European nations by driving inflation. Research shows that oil price shocks have a statistically significant impact on inflation across most economies. This is due to crude oil being a key ingredient in the production of plastic and other widely used materials. This causes general price increases in goods and services, not just fuel costs[17].

Meanwhile, emerging markets tend to experience even sharper inflationary spikes. This is because weaker currencies and heavy reliance on imports can amplify price increases. Overall, sustained oil prices above $100 per barrel can add noticeable upward pressure to inflation. It can also slow economic growth, highlighting how quickly energy shocks ripple through the global economy[18].

Impact on the U.S. Economy

The impact on crude sprawls beyond the oil and gas industry. Rising oil prices are also driving up the cost of fertilizer which in turn impacts the broader U.S. agriculture sector. Fertilizer production is highly energy-intensive. This is especially true for nitrogen-based products that rely on natural gas and petroleum inputs [19]. In the current environment, disruptions tied to the Strait of Hormuz have already driven up the cost of key inputs such as ammonia, urea, and sulfur. Some U.S. farmers are reporting fertilizer price increases of up to 40% during the spring planting season[20].

At the same time, higher diesel prices are raising the cost of operating farm equipment and transporting crops. This is compounding financial pressure across the supply chain. Because fertilizer and fuel can account for a large share of total farming expenses, these increases are squeezing margins. This can reduce fertilizer application rates and crop yields, ultimately pushing food prices higher for consumers.

Furthermore, there are early signs of oil being traded in alternative currencies, particularly between China, Iran and Russia. Recent demands from Iran state that tankers must pay for oil in Yuan in order to exit the strait. While these transactions appear to remain limited, this strengthens alternative energy trading networks that threaten the dominance of the petrodollar system. This is where oil is primarily priced and traded in dollars worldwide, creating a steady global demand for the currency [21].

In the near term, the U.S. dollar has actually strengthened amid the crisis, supported by higher oil prices and safe-haven demand. However, a continued shift away from dollar-based oil trade could pose a longer-term risk so it should be closely monitored[22].

Conclusion

The Strait of Hormuz disruption is the largest energy shock since the onset of the Russia / Ukraine war in early 2022. It has sent crude prices soaring and strained global supply chains. Gulf exporters face lost revenue and logistical headaches. Import-dependent countries, from Europe to Asia, are facing higher inflation and energy costs[23]. This crisis serves as a stark reminder that even well-established trade routes are vulnerable. It also shows that disruptions in a single region can reverberate across the entire global economy.

The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.

1. Based on Q1 2025, but figures are consistent for 2024 as well.

2. U.S. Energy Information Administration. World Oil Transit Chokepoints. International – U.S. Energy Information Administration (EIA)

3. Vessels are tracked through the Automatic Identification System (AIS). Figures are estimations.

4. It’s important to note that there is no centralized reporting of vessels that pass through the Strait of Hormuz. Also, vessels have the ability to “go dark” to avoid being detected through AIS. Figures provided are compiled through various media outlets.

5. Encyclopedia Britannica. “Strait of Hormuz.” Accessed March 17, 2026. Strait of Hormuz | Map, Importance, Conflict and Closure, Control, Oil, & Facts | Britannica

6. Atlas Institute for International Affairs. “The Strait of Hormuz: A Key Point for Global Energy and Security.” Accessed March 17, 2026. The Strait of Hormuz: A Key Point for Global Energy and Security | Atlas Institute for International Affairs

7. Iran war is causing largest disruption in history to oil supplies, says IEA

8. Maps and charts of the Iran crisis

9. Live Updates: Iran war escalates, energy prices spike after Israeli strike on South Pars gas field

10. Oil and gas prices rise again after Iran attacks production facilities | Oil | The Guardian

11. U.S. Energy Information Administration / Charted: Oil Trade Through the Strait of Hormuz by Country

12. U.S. Energy Information Administration. World Oil Transit Chokepoints. International – U.S. Energy Information Administration (EIA)

13. Retail gasoline in China generally fluctuates with international crude prices but generally won’t be increased one the price per barrel is over $130. Similarly, the price won’t decrease once the price per barrel dips below $40.

14. China Makes Biggest Retail Fuel Price Cap Increase in Four Years Amid Iran War

15. Explained: Why gas prices are rising in India amid Iran war – The Economic Times

16. World Oil Statistics – Worldometer

17. The Fed – Second-Round Effects of Oil Prices on Inflation in the Advanced Foreign Economies

18. The potential impact of high oil prices on the global economy | Vanguard UK Professional

19. The relationship between crude oil prices and export prices of major agricultural commodities : Beyond the Numbers : U.S. Bureau of Labor Statistics

20. Iran war leaves US farmers worried about essential fertilizer | AP News

21. The three traps for Trump in the Strait of Hormuz: ‘Kill box’ for tankers, payment in yuan, and a maze of islands

22. China-Iran Fact Sheet: A Short Primer on the Relationship | U.S.- CHINA | ECONOMIC and SECURITY REVIEW COMMISSION

23. U.S. Energy Information Administration. World Oil Transit Chokepoints. International – U.S. Energy Information Administration (EIA)