Since March 1, only 77 vessels have transited the Strait of Hormuz. Recent military developments include U.S. airstrikes on Iran's key oil export hub, Kharg Island. The United States and Israel reported targeting Iranian intelligence facilities among other objectives. Over 15 explosions were heard, with sources confirming the U.S. military struck Kharg Island.
Daily crude shipments, previously around 20 million barrels, have nearly halted. On March 9, Brent crude futures briefly reached $119.5 per barrel, marking a new high for 2022. This is the fourth time in history that international oil prices have surpassed the $100 per barrel threshold. As conflicts between the U.S., Israel, and Iran intensify, the largest oil supply disruption on record is impacting global markets. The closure of the Strait of Hormuz, a critical global energy artery, has caused supply interruptions twice as severe as the 1956 Suez Crisis and approximately three times greater than the 1973 Arab oil embargo by OAPEC.
Despite the International Energy Agency (IEA) deploying its largest emergency measure in half a century—releasing 400 million barrels from strategic reserves—the response remains insufficient against the massive supply shortfall. The three previous oil crises in 1973, 1979, and 1990, two of which triggered global stagflation, are now overshadowed by the risk of a fourth crisis. Soaring oil prices and a strong U.S. dollar are pushing the fragile global economy toward uncertain territory.
On March 11, Iran’s Islamic Revolutionary Guard Corps declared that "U.S. aggressors and their allies have no right of passage." The following day, Iran’s new Supreme Leader, Mujtaba Khamenei, stated in his first national address that Iran would continue strategic measures, including blockading the Strait of Hormuz, and open new fronts if necessary. On March 13, U.S. President Donald Trump announced on social media that the U.S. military had launched "intensive airstrikes" on military targets at Kharg Island, Iran’s primary oil export terminal. Kharg Island is both highly sensitive and vulnerable. According to a Financial Times report cited by China News Service, shallow waters along most of Iran’s coastline prevent large tankers from docking, making Kharg Island a critical chokepoint: nine out of every ten barrels of Iranian oil exports are loaded there, with a daily capacity of up to 7 million barrels. Control of Kharg Island offers strategic leverage over the Strait of Hormuz.
The Strait of Hormuz is a vital passage for crude exports from Saudi Arabia, Iraq, Qatar, the UAE, and other Middle Eastern producers, handling about one-fifth of global oil and liquefied natural gas shipments. Before the conflict, daily traffic through the strait was approximately 20 million barrels; now, it has nearly stalled. Analysts at Rapidan Energy noted that the most severe prior supply disruption occurred during the 1956 Suez Crisis, affecting roughly 10% of global oil supply. The current disruption is twice that scale and about three times larger than the 1973 OAPEC embargo.
According to Argus Media, an independent energy and commodity price assessor, only two crude and product tankers passed through the Strait of Hormuz on March 12, following just one the previous day. Historically, an average of 138 vessels transited daily. Compounding the crisis, global spare production capacity is exhausted. Saudi Arabia and the UAE hold most of the world’s adjustable capacity, but their resources are trapped inside the Persian Gulf, cut off from international markets. "The market has lost its effective cushion," Rapidan analysts wrote, "with no swing producer able to compensate."
Amid geopolitical tensions and supply shortages, international oil prices have surged. Brent crude rose from a settlement price of $72.48 per barrel on February 27 to break above $90, briefly touching $119.5 on March 9—a 2022 peak. Before this, oil prices had exceeded $100 per barrel only three times historically.
In response to the supply cut and soaring prices, the IEA played its strongest card. On March 11, the agency announced that its 32 member states agreed to release 400 million barrels from strategic petroleum reserves, representing about 30% of total member reserves. This volume equates to roughly 20 days of global consumption. This coordinated release is the largest since the IEA’s founding in 1973. By comparison, members released a combined 180 million barrels following the 2022 Russia-Ukraine conflict; the current release is more than double that amount.
The IEA did not specify a unified release schedule, indicating that each country would arrange distributions based on its own situation. According to CCTV News, the U.S. Department of Energy plans to release 172 million barrels starting next week. Germany will release 19.51 million barrels, Canada 23.6 million barrels, and South Korea 22.46 million barrels. Japan will also begin releasing national reserves on March 16. However, markets remained unimpressed, and oil prices continued climbing. On March 12, Brent settled 9.2% higher, breaking above $100 per barrel for the first time since August 2022. The next day, it closed above $100 again at $103.89. For the week, Brent gained 12%.
As one commodities analyst noted, "This is a flow problem, not a storage problem." BMI, a Fitch Solutions research unit, told reporters that it expects daily releases of 300,000 to 3.5 million barrels, whereas supply disruptions in the Gulf have already reached 15 million barrels per day or more. Huatai Futures also highlighted in a March 12 report that although the IEA’s total release amounts to 400 million barrels, the delivery pace is slow. For example, the U.S. strategic reserve release of 172 million barrels will take 120 days to complete, while the Strait closure disrupts up to 10 million barrels per day. Unless the 400 million barrels are released rapidly, the impact on easing the supply gap will be limited.
Rebecca Babin, senior energy trader at CIBC Private Wealth, noted that "auctioning, loading, and actually introducing crude into the system takes time," adding that there are "physical limits" to how fast oil can be drawn from reserves. During the largest coordinated release after the 2022 Russia-Ukraine conflict, the maximum actual release rate was about 1.2 million barrels per day—likely the upper limit achievable now. J.P. Morgan argued that a release of 1.2 million barrels per day is inadequate to offset losses, projecting a potential shortfall of 12 million barrels daily within two weeks.
Previous Middle East oil crises, particularly in 1973 and 1979, triggered worldwide stagflation. The 1973 Yom Kippur War led to an Arab oil embargo, disrupting about 7% of global supply and driving prices from around $3 to nearly $12 per barrel. Data from the IMF and European Central Bank show eurozone CPI surging from 6.3% in 1972 to 13.2% in 1974, while U.S. CPI jumped from 3.4% to 12.3% over the same period. High oil prices suppressed industrial output and consumer spending, forcing energy-intensive industries in the West to cut production. U.S. GDP growth (year-on-year) fell from 5.60% to -0.50%, and manufacturing output growth dropped from over 10% in 1972–1973 to 4.21% in 1974 and 5.23% in 1975. Japan’s economy suffered more severely, with GDP growth sliding from 8.03% in 1973 to -1.23% in 1974.
The 1979 Iranian Revolution sparked the second oil crisis, with prices rising from $15 to nearly $40 per barrel. By 1980, both eurozone and U.S. CPI reached 13.5%. Business investment plummeted in Europe and the U.S., with auto, steel, and shipbuilding industries entering prolonged recessions. U.S. GDP growth fell from 5.5% in 1978 to -0.3% in 1980; eurozone growth stagnated amid rising unemployment. Japan avoided major damage through strict inflation control but still saw GDP growth decline from 5.48% in 1979 to 2.82% in 1980. From 1979 to 1982, the global economy nearly stalled.
The 1990 Gulf War caused prices to soar from $14 per barrel in July 1990 to $41 within three months—a 192% increase. The U.S. economy entered a recession in Q3 1990, dragging down global growth. Soaring gasoline and fuel prices pushed U.S. inflation to 6.1% in 1990, the highest since 1981, and reduced American workers’ purchasing power by the most in nine years.
Wen Shaobiao, a research fellow at Shanghai International Studies University’s Middle East Studies Institute, noted that compared to the 1973 and 1979 crises, the current Hormuz disruption affects a broader range, including emerging Asia-Pacific economies. Sustained high oil and gas prices will further strain the already burdened global industrial system. He emphasized that long-term high prices are unsustainable for the global economy, as manufacturing pressure, inflation-driven consumption constraints, and expanded investment in alternative energy will accelerate changes in demand and energy structure, increasing structural factors that suppress oil prices.
On March 10, IMF First Deputy Managing Director Daniel Katz warned that Middle East conflicts pose significant risks to the global economy, particularly for inflation and growth, with oil-importing countries especially vulnerable. As oil prices rise, the U.S. dollar is also strengthening. On March 13, the dollar index broke above 100 for the first time since last November.
Aaron Hurd, senior portfolio manager at State Street Global Advisors, noted that dollar strength stems not only from safe-haven demand but also from the U.S. being a net energy exporter, which offers relative advantage during oil price spikes. As of March 13, the euro and Korean won had depreciated by 3.38% and 3.5% against the dollar since the escalation of U.S.-Israel-Iran tensions, while the yen fell 2.29% and the Indian rupee 1.58%. This means these countries face not only oil prices above $100 per barrel but also reduced purchasing power due to currency depreciation.
On March 11, European Commission President Ursula von der Leyen stated in a European Parliament speech that soaring oil and gas prices have already cost Europeans an extra €3 billion in energy imports. However, a stronger dollar does not fully shield the U.S. AAA data show the U.S. average gasoline price rising to $3.58 per gallon on March 11, a 21-month high. Prices increased 38 cents in the past week and 64 cents in the past month—the largest weekly and monthly gains since March 2022.
Nobel laureate Paul Krugman recently wrote that if the conflict persists, "it could be the final straw for the U.S. economy." He suggested that initial U.S. hopes for a quick victory in Iran have faded, leaving the country mired in an open-ended, costly conflict. While the U.S. might withstand this shock alone, combined with a fragile and uncertain domestic economic outlook, the ultimate cost could be substantial.
Kent Smetters, director of the Penn Wharton Budget Model, estimated this week that conflict in Iran could ultimately cost U.S. taxpayers up to $210 billion. Krugman also predicted that tight supply and high prices could persist until 2027, noting that "even if a ceasefire happens tomorrow, restarting production capacity will take time."
Other economists warn that renewed inflation will dampen consumer demand and economic activity, heightening stagflation concerns. Ian Stewart, chief economist at Deloitte UK, remarked, "Talk of recession is back."
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