Consider the scale of the disruption:
- Roughly 20% of global oil supply transits the Strait of Hormuz each day.
- 20% of the world’s liquefied natural gas (LNG) follows the same route.
- 25-27% of refined products—diesel, jet fuel, and other critical fuels—flow through this chokepoint.
- Approximately one-third of global fertilizer supply passes through Hormuz, with direct implications for up to 30% of Black Sea wheat exports already strained by the Russia-Ukraine conflict.
- One-third of the world’s helium supply from Qatar has gone offline—critical for MRI machines and the cooling systems that power semiconductor fabrication for AI.
The human and economic toll is already visible worldwide: petrol and diesel rationing in Sri Lanka, LPG cooking gas restrictions in India, four-day workweeks and mandatory remote work in Pakistan and the Philippines, widespread flight cancellations across Asia, early school and university closures plus energy curfews in Bangladesh, fuel rationing in Slovenia, and warnings from Shell’s CEO that Europe could face acute scarcity within weeks.
When the first strikes landed roughly a month ago, analysts estimated that the full economic impact would unfold over 4-6 weeks as global inventories depleted. That window gave the U.S. a narrow window to achieve its objectives and reopen the strait. Despite impressive demonstrations of air superiority, however, the waterway remains effectively closed, and the timeline for resolution remains uncertain.
Regardless of one’s views on the conflict itself, the rolling energy shock now reshaping markets demands close attention. Fortunately for the United States, the pain will likely prove far more asymmetric. America is a net energy exporter, while Europe and Asia remain heavy net importers. Global oil prices have risen in tandem worldwide, but U.S. natural gas prices have diverged sharply from European and Asian benchmarks due to constrained export infrastructure. Higher input costs will pressure margins, yet the net effect on the U.S. economy is far less severe. Inflation will climb, but the Federal Reserve appears unlikely to respond with the aggressive rate hikes seen in 2022-23. Moreover, strong corporate profitability—bolstered in part by large fiscal deficits—has left many U.S. firms better positioned to absorb higher borrowing costs with less drag on capital investment.
This does not mean equity markets are immune to downside. Predicting when (or if) the Strait of Hormuz reopens remains nearly impossible. A few weeks ago, my instinct suggested the operation might conclude in three to four weeks, assuming the Pentagon had fully war-gamed the risks. Logic, however, pointed the other way: wars rarely proceed according to plan, and Iran has little incentive to capitulate quickly—every reason, in fact, to keep the strait closed as long as possible.
With that foundation and in this longer-than-usual edition, I tackle the questions that have dominated my thinking over the past thirty days, beginning with the most urgent:
What happens next in the war?
Speculating on possible U.S. courses of action is straightforward; assigning precise probabilities in such a fluid environment is far harder. Here are six plausible next steps (presented in no particular order):
- Trump declares victory and pivots home. “Maybe we shouldn’t even be there at all?” — Donald Trump, March 17, 2026. The White House has pressed European and Asian allies to help secure the strait, only to meet resistance. Given America’s self-sufficiency in energy and food, a prolonged closure could prompt export controls or aggressive deal-making (“Want access to our oil? Bring your factories to the U.S.”). Trump could also accelerate domestic coal production to ease natural gas pressure. While unpopular with some constituencies, this path cannot be ruled out—especially amid ally fatigue, NATO spending disputes, and recent successes in the Western Hemisphere. It would pressure the dollar lower (an outcome Trump has long favored) and hit import-dependent nations such as Japan particularly hard.
- Marines seize Kharg Island. Capturing Iran’s primary oil export terminal—handling roughly 90% of its crude—sounds decisive on paper. In practice, Iran could simply shut down the pumps, rendering the island strategically worthless while exposing U.S. forces to persistent drone threats. Any oil recovered would still need to transit the contested strait, creating a prolonged vulnerability that could force a difficult choice between casualties and withdrawal.
- Intercept or seize Iran’s oil exports at sea. A safer but slower alternative: interdict tankers and halt vessels paying transit fees to Iran. This could inflict meaningful long-term economic damage but would likely take months to bite—too slow for the political pressure to deliver a swift resolution.
- Open the strait by direct force. The economics of modern naval warfare have shifted dramatically: cheap drones versus billion-dollar warships protected by million-dollar missiles. The U.S. Navy has yet to attempt this option, suggesting current capabilities may not yet neutralize the asymmetric threat. Whether the administration is willing to risk a capital ship remains an open—and high-stakes—question, especially given uncertainty around Iran’s remaining drone inventory.
- Seize Iran’s enriched uranium stockpile. As of 2025, Iran held approximately 441 kg of uranium enriched to 60% U-235—enough for several rudimentary nuclear devices. Dispersing and protecting this material across hardened sites would require multiple high-risk special operations, far more complex than the failed 1980 hostage rescue mission.
- Negotiate a deal. Reports indicate active discussions between remnants of the Iranian government and Vice President JD Vance. A reported 15-point U.S. proposal calls for Iran to reopen the strait, abandon its nuclear program, surrender enriched uranium, constrain its missile capabilities, and sever ties with regional proxies—in exchange for sanctions relief, returned assets, and reconstruction support. This remains the least destructive near-term path, yet also the most fragile: a single rogue incident or external strike could derail talks.
Which matters more for markets right now: monetary policy or geopolitics?
For over a decade, Federal Reserve pronouncements dominated market narratives. Increasingly, however, major geopolitical shocks—Russia’s invasion of Ukraine and now the Iran conflict—have forced central banks into a reactive posture. If geopolitics has overtaken monetary policy as the primary driver, investors must elevate their focus on supply-chain fragility, commodity volatility, and second-order inflation risks.
How will politicians respond to the energy shock?
Crises create political opportunity. Expect Western leaders to act visibly: Europe may impose windfall taxes on energy producers; the U.S. could explore price controls or export restrictions; China has already curtailed exports of fertilizer, jet fuel, and diesel. In consumer-driven economies, further intervention is probable if prices continue rising.
Will higher oil prices spur meaningful capex from Big Oil?
Executives face genuine uncertainty. What if the conflict resolves favorably in weeks and prices collapse? What if price controls or export bans erode margins? What if European governments levy special taxes on windfall profits? These risks could temper the expected surge in exploration, drilling, and equipment spending.
How quickly will oil prices fall once the strait reopens?
Given reported Iranian strikes on refineries in Saudi Arabia, Kuwait, and Israel, a resolution would likely trigger an initial sharp decline as hedges unwind and traders reassess. Yet a higher long-term price floor appears probable, reflecting infrastructure damage and a lingering geopolitical risk premium.
What does this mean for data centers and AI infrastructure?
Soaring electricity costs had already pushed some new data center projects toward the Middle East. That calculus has now reversed. Tech giants may redirect investment back to the Western Hemisphere—potentially powering facilities with small modular nuclear reactors. A Trump-Xi meeting in May could include solar panel deals, allowing U.S. firms to leverage China’s cost advantage (roughly 25% of U.S. production costs) while preserving ESG credentials.
Will nations accelerate the drive for energy independence?
Many countries have relied on Middle East energy flows for decades. This shock may spur renewed investment in wind, solar, and commercial nuclear power, alongside new diplomatic realignments to secure alternative supplies.
How does the Iran war affect U.S.-China relations?
Ironically, the conflict could open pathways for pragmatic cooperation: yuan revaluation to cushion China’s import costs, expanded solar panel exports, rare earth access for U.S. defense and AI needs, relaxed sanctions on Russian and Iranian oil to China, increased Chinese manufacturing investment in the U.S., and higher Chinese purchases of American agricultural and aerospace goods. Economic necessity may temper broader strategic rivalry.
Final Thoughts
This is far from an exhaustive list of questions. The situation remains highly fluid, with the fog of war thick and new developments arriving daily. One certainty stands out: this conflict differs markedly from prior Middle East engagements.
I first wrote about stagflation risks one year ago in Whiffs of Stagflation in the Air… and have addressed inflation dynamics many times since. Today, the U.S. employment picture is showing signs of softening, while the energy shock is adding upward pressure on prices. These developments echo the stagflation risks I flagged a year ago—though we’re not seeing outright stagflation yet, the combination of softening employment and rising energy-driven prices certainly feels like the early stages.
Regardless of one’s views on the war itself, investors must keep their focus squarely on the Strait of Hormuz. Time is running short to avoid a prolonged inflationary shock that could test even the most resilient economies and portfolios.
