The U.S.-led war against Iran has triggered the single largest disruption to global energy markets and trade flows since the COVID-19 pandemic, and by some measures, it is worse. When Iran’s Islamic Revolutionary Guard Corps declared the Strait of Hormuz closed on March 4, 2026, it effectively shut down the corridor through which 20 percent of the world’s oil supply — roughly 20 million barrels per day — normally flows. The International Energy Agency has called it the “largest supply disruption in the history of the global oil market,” a designation that surpasses the 1973 Arab oil embargo, the Iranian Revolution, and the Gulf War. Brent crude has surged from around $70 per barrel before the conflict began to nearly $120 at its peak, settling around $103.14 as of mid-March. American consumers are already paying 74 cents more per gallon at the pump than they were three weeks ago, and economists warn that monthly inflation could hit 1 percent in March alone — the highest in four years. This crisis did not materialize overnight.
It began on February 28, 2026, when joint U.S.-Israeli airstrikes hit targets across Iran, including a decapitation strike that killed Supreme Leader Ali Khamenei along with other senior officials. Iran’s retaliation — threatening and attacking commercial vessels in the Strait of Hormuz — has created a cascading chain of economic consequences that extends far beyond oil prices. Fertilizer supply chains are fracturing. Asian economies that depend almost entirely on Persian Gulf oil are scrambling. Global food prices are climbing. And Goldman Sachs projects the war will shave 0.3 percent off global GDP growth while adding half a percentage point or more to inflation over the next year. This article breaks down exactly how this conflict is reshaping global trade, what it means for American households paying more at the pump and the grocery store, which countries face the most severe economic fallout, and what the realistic outlook is for the months ahead.
Table of Contents
- How Did the Iran War Create the Biggest Disruption to Global Trade Since COVID?
- What the Strait of Hormuz Closure Means for Oil Prices and U.S. Energy Security
- The Consumer Price Shock — Gas, Groceries, and Everything in Between
- Which Countries Face the Worst Economic Fallout — and Why It Matters for Americans
- The Insurance Problem Nobody Is Talking About
- The Fertilizer Crisis Hiding Inside the Energy Crisis
- What Happens Next — Scenarios for the Months Ahead
- Conclusion
- Frequently Asked Questions
How Did the Iran War Create the Biggest Disruption to Global Trade Since COVID?
The scale of this disruption comes down to geography and math. The Strait of Hormuz is a narrow waterway — roughly 21 miles wide at its narrowest point — through which 4.5 percent of all annual global trade passes. That includes not just oil but nearly 50 percent of global urea and sulfur exports and 20 percent of the world’s liquefied natural gas. When Iran declared the strait closed and began threatening vessels, tanker traffic dropped by approximately 70 percent. Over 150 ships anchored outside the strait rather than risk transit. Even where Iran has not physically blockaded the waterway, the withdrawal of maritime insurance has effectively done the job — war-risk premiums have skyrocketed to levels that make transit economically unviable for most carriers. The COVID-19 pandemic disrupted supply chains primarily through demand shocks and factory shutdowns. The Hormuz crisis is different — it is a supply-side chokepoint that simultaneously affects energy, petrochemicals, agriculture, and manufacturing inputs. During COVID, oil prices actually collapsed because demand evaporated. Here, demand remains strong while supply The immediate oil price shock has been severe but not yet catastrophic — and that distinction matters. Brent crude’s move from $70 to the $103 range represents roughly a 47 percent increase, painful but still below the inflation-adjusted highs seen during the 2008 oil crisis. However, the situation remains deeply unstable. On March 13, the U.S. Air Force conducted a bombing raid on Kharg Island, targeting more than 90 military sites while deliberately sparing oil infrastructure. Kharg Island handles approximately 90 percent of iran‘s crude exports — around 1.5 million barrels per day. President Trump explicitly warned that oil facilities could be next if Iran continues attacking commercial vessels. That warning is doing enormous work in the markets. The mere possibility of strikes on Kharg Island’s oil terminals has kept a significant risk premium baked into every barrel of crude traded globally. Traders are pricing in not just today’s disruption but the probability of tomorrow’s escalation. If Iran’s oil export infrastructure were actually destroyed, analysts estimate Brent could test $130 to $150 per barrel. On the other hand, if a ceasefire were reached and the strait reopened within weeks, prices could retreat sharply — which is why Goldman Sachs has cautioned that the current price level reflects uncertainty more than fundamentals. Here is the critical limitation that many analysts understate: even if the shooting stopped tomorrow, the disruption would not end tomorrow. Insurance markets take time to normalize. shipping companies need to rebuild confidence in the route. Contracts that were rerouted around the Cape of Good Hope — adding weeks and significant cost to voyages — cannot be unwound overnight. The post-crisis hangover from a Hormuz closure could last months even in the best-case scenario, much as port congestion lingered long after COVID lockdowns ended. American consumers are feeling this conflict directly and immediately. The national average gas price has surged to $3.72 per gallon, up 74 cents since the war began on February 28. That 26.9 percent monthly increase is the largest since Hurricane Katrina in 2005. In California, where refinery closures and import dependence compound the problem, prices have reached $5.34 per gallon. For a household that drives 1,000 miles per month in a vehicle getting 25 miles per gallon, the war has added roughly $30 per month to the fuel bill — and that is just the national average. In California, the added cost is closer to $65. But gasoline is only the most visible cost. Diesel at $4.83 per gallon flows through every supply chain in the country. The Center for American Progress has warned that the war will raise costs “throughout the economy,” and the mechanism is straightforward: virtually every physical good Americans buy was transported by a diesel-powered vehicle at some point. The Washington Post reported that economists now estimate March inflation could hit 1 percent — a monthly rate that, if sustained, would annualize to over 12 percent. For context, the peak monthly inflation rate during the post-COVID surge was 1.2 percent in June 2022. The UN World Food Programme has warned of significant long-term increases in global food prices, and this is where the disruption gets especially concerning for lower-income households. Food and fuel are non-discretionary spending — people cannot simply choose to buy less of them the way they might delay purchasing a new television. When the essentials get more expensive, the households with the least financial cushion absorb the most pain. That dynamic was painfully evident during 2022’s inflation spike, and all signs suggest a repeat is underway. The global nature of this disruption is not just an abstract concern for trade economists. Asian economies are absorbing the most direct blow from the Hormuz closure, and the ripple effects will reach American shelves. The Philippines sources 96 percent of its oil imports from the Persian Gulf. Vietnam is at 87 percent. Thailand stands at 74 percent. These are not minor players in the global economy — they are central nodes in the manufacturing and agricultural supply chains that produce electronics, textiles, processed foods, and components that American companies depend on. Thailand offers a particularly instructive case. The country is one of the world’s largest rice exporters, and Thai rice shipments to the Middle East have effectively stalled due to the conflict. Meanwhile, Thailand’s own economy is being hammered by soaring energy costs that raise production expenses for everything from automotive parts to seafood processing. Regional airspace closures across Bahrain, Iraq, Israel, Kuwait, Qatar, Syria, and the UAE have also disrupted aviation, adding further friction to trade and travel. Goldman Sachs projects the war will reduce global GDP growth by 0.3 percent and increase headline inflation by 0.5 to 0.6 percentage points over the next year — and those estimates assume the conflict does not escalate further. The tradeoff for American policymakers is stark. Aggressive military action may achieve strategic objectives against Iran, but every additional week of Hormuz disruption adds billions in costs to the global economy and translates into higher prices for American consumers. The strategic petroleum reserve release of 400 million barrels across IEA member nations provides a buffer, but that buffer is finite. If this conflict stretches into months rather than weeks, the reserves become a depleting asset rather than a sustainable solution. The physical threat from Iranian naval assets and mines in the Strait of Hormuz is real, but there is a second, less visible blockade that may prove even harder to lift: the collapse of maritime insurance coverage. When major insurers and reinsurers withdraw war-risk coverage for a region, it does not matter whether a ship can physically transit. Without insurance, cargo cannot be financed, ports will not accept vessels, and owners will not risk billion-dollar assets. The insurance withdrawal has effectively closed the strait even in areas where Iran’s navy has not established a physical presence. War-risk premiums for vessels transiting the Persian Gulf have skyrocketed to levels not seen since the Tanker War of the 1980s. For a single voyage through the strait, the additional insurance cost can run into the hundreds of thousands of dollars — costs that are ultimately passed through to consumers. And here is the warning that matters for the medium-term outlook: insurance markets are historically slow to re-enter conflict zones even after hostilities end. After the Houthi attacks on Red Sea shipping in 2024, war-risk premiums remained elevated for months after the attacks subsided. The same pattern is likely here, meaning that even a swift resolution to the military conflict would not immediately restore normal shipping flows. This creates a particularly difficult situation for smaller shipping companies and developing nations that cannot absorb the inflated costs. Larger carriers with deeper pockets and diversified fleets can reroute around the Cape of Good Hope — adding 10 to 14 days and significant fuel costs to Asia-Europe routes — but smaller operators may simply stop sailing those routes altogether. The result is a two-tier shipping market where the wealthiest players survive while smaller competitors are squeezed out, reducing overall capacity and keeping freight rates elevated. One of the most underreported dimensions of the Hormuz disruption is its impact on global fertilizer supply chains. Nearly 50 percent of global urea and sulfur exports transit the Strait of Hormuz. Urea is a critical nitrogen fertilizer used in food production worldwide, and sulfur is an essential input for phosphate fertilizer production. The disruption to these flows comes at the worst possible time — the Northern Hemisphere spring planting season is underway, and farmers need fertilizer now, not in three months. The last time global fertilizer markets faced a major supply shock was in 2022, when Russia’s invasion of Ukraine disrupted potash and nitrogen fertilizer exports. That crisis contributed to a global food price spike that pushed an estimated 50 million additional people into acute hunger, according to the World Food Programme. The current disruption threatens a similar dynamic. If fertilizer shipments remain disrupted through April, the planting season in North America, Europe, and parts of Asia will be affected — not immediately, but in the form of reduced yields and higher food prices later in 2026. This is the slow-moving dimension of the crisis that headlines about oil prices tend to obscure. The trajectory of this crisis depends almost entirely on whether the military conflict escalates, stabilizes, or de-escalates — and as of mid-March 2026, all three outcomes remain plausible. The best-case scenario involves a negotiated ceasefire, a gradual reopening of the Strait of Hormuz, and a slow normalization of insurance markets and shipping routes over two to four months. In that scenario, Goldman Sachs’ estimate of a 0.3 percent hit to global GDP and half a percentage point of additional inflation may hold. Oil prices would likely settle in the $85 to $95 range — above pre-war levels but manageable. The worst-case scenario involves strikes on Kharg Island’s oil infrastructure, further Iranian retaliation in the strait, and a prolonged closure lasting months rather than weeks. In that scenario, the IEA’s strategic reserve releases would be exhausted, oil prices could test $140 or higher, and the global economy would face a genuine stagflation risk — rising prices combined with contracting growth. For American consumers, that would mean gas prices well above $5 nationally, accelerating food inflation, and a Federal Reserve caught between the need to fight inflation and the risk of tipping the economy into recession. The honest assessment is that nobody — not Goldman Sachs, not the Pentagon, not the oil markets — knows which scenario will play out. What is certain is that the disruption already baked into the system will take months to unwind regardless of what happens next. The Iran war has created a global trade disruption that rivals and in some ways exceeds the COVID-19 pandemic’s impact on supply chains. The closure of the Strait of Hormuz has removed 20 percent of global oil supply from the market, sent energy prices surging, disrupted fertilizer and LNG flows critical to food production, and imposed costs that are already visible at every American gas station. The 74-cent jump in gas prices, the 28 percent spike in diesel, and the prospect of 1 percent monthly inflation are not abstract economic indicators — they are real costs hitting real household budgets, with the heaviest burden falling on those least able to absorb it. What makes this crisis particularly challenging is its combination of severity and uncertainty. The IEA’s strategic reserve release, the largest coordinated effort of its kind, buys time but does not solve the underlying problem. The insurance market collapse around the strait creates friction that will outlast the military conflict itself. And the fertilizer disruption threatens a second wave of price increases later in 2026 if spring planting is affected. For consumers, the practical reality is straightforward: prices are going up, the timeline for relief is uncertain, and the potential for further escalation means budgeting for higher costs in the months ahead is not pessimism — it is prudence. The national average has increased by 74 cents per gallon since the war began on February 28, reaching $3.72 per gallon. California is significantly higher at $5.34 per gallon. The 26.9 percent monthly increase is the largest since Hurricane Katrina in 2005. Iran’s IRGC declared it closed on March 4, and tanker traffic has dropped by approximately 70 percent, with over 150 ships anchored outside the strait. Even where there is no physical blockade, the withdrawal of maritime insurance has made transit economically impossible for most carriers. Effectively, yes — it is closed. The IEA’s 32 member countries agreed to release 400 million barrels from emergency reserves, which may slow price increases and prevent the worst-case scenarios. However, strategic reserves are a temporary measure. They cannot replace the 20 million barrels per day that normally transit the strait on an ongoing basis. Nearly 50 percent of global urea and sulfur exports transit the Strait of Hormuz. These are essential fertilizer inputs. Disruption during the spring planting season could reduce crop yields and push food prices higher later in 2026. The UN World Food Programme has warned of significant long-term increases in global food prices. Asian economies that depend heavily on Persian Gulf oil face the most direct impact. The Philippines sources 96 percent of its oil imports from the region, Vietnam 87 percent, and Thailand 74 percent. Thai rice exports to the Middle East have effectively stalled. Even in a best-case ceasefire scenario, insurance markets and shipping routes would take two to four months to normalize. If the conflict escalates — particularly if oil infrastructure on Kharg Island is struck — the disruption could last significantly longer and deepen substantially.
What the Strait of Hormuz Closure Means for Oil Prices and U.S. Energy Security
The Consumer Price Shock — Gas, Groceries, and Everything in Between
Which Countries Face the Worst Economic Fallout — and Why It Matters for Americans
The Insurance Problem Nobody Is Talking About
The Fertilizer Crisis Hiding Inside the Energy Crisis
What Happens Next — Scenarios for the Months Ahead
Conclusion
Frequently Asked Questions
How much has gas gone up because of the Iran war?
Is the Strait of Hormuz actually closed?
Will the strategic petroleum reserve release bring prices down?
How does this affect food prices?
Which countries are hit hardest?
How long will this disruption last?
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