The joint attack by the United States and Israel on Iran that began on February 27 has triggered a rapidly escalating conflict across the Middle East. Iran has responded with strikes on US bases in neighbouring countries, including as far as Qatar and Oman, and has announced the closure of the Strait of Hormuz, even threatening to set ships on fire if they try to transit it.
The Strait of Hormuz is a 55-kilometre-wide channel between Iran and Oman that links the Persian Gulf to the Arabian Sea. It is a vital artery for the energy sector and one of the world’s busiest, most strategically important shipping routes. The closure has disrupted oil and gas shipments from the region and unsettled global markets: overall maritime traffic through the strait has fallen about 70 per cent since the closure, with 18 loaded and 37 unloaded tankers remaining in the Persian Gulf.
Normally about 13 million barrels per day move through the strait — roughly 31 per cent of global oil shipments — so blocking passage is certain to affect world oil prices. Even a short-lived partial closure of the strait in February 2025 caused oil prices to jump about six per cent.
Why it matters
Closure of the strait impacts major export ports in Iraq, Kuwait, Saudi Arabia and the United Arab Emirates, as well as Iran; for some of these countries it is the principal route for oil to global markets. On March 2, Brent crude — the global benchmark — reached about USD 79 per barrel (around eight per cent higher than the previous week), while West Texas Intermediate, the North American benchmark, hit USD 71 per barrel (about a six per cent increase). Those moves are already filtering down to pump prices in Canada and the US, though retail increases have been less dramatic than commodity shifts. Price pressures could persist while tanker traffic remains disrupted.
Historically, large oil price spikes have often signalled impending economic downturns. The 1970s oil crises led to major economic and structural changes in many countries; could that recur?
Lessons from past oil shocks
The 1973 oil crisis began when OAPEC embargoed oil exports to the US over its support for Israel, causing oil prices to quadruple in two months and triggering a stock market crash and recession. At that time OPEC members were coordinated and the US lacked sufficient domestic production to offset the disruption.
Today, OPEC is not aligned with Iran. Many oil producers, including Russia, have agreed to boost output by about 206,000 barrels per day to stabilise markets.
The 1979 crisis, prompted by the Iranian Revolution, caused a roughly seven per cent drop in global production; even that smaller shortfall doubled crude prices into early 1980 and led to fuel shortages and downturns. Iran’s direct influence is smaller now — it produces about four per cent of annual global output — while the US, Saudi Arabia and Russia are larger players (US ~22%, Saudi ~11%, Russia ~11%, Canada ~6%, China ~5%, per the US Energy Information Agency). That makes the market less likely to react with the same severity as in the 1970s.
The current wildcard remains the Strait of Hormuz. Saudi Arabia’s largest export port, Ras Tanura, sits on the Persian Gulf and its nearby refinery was recently struck in a drone attack. A total closure of the strait could remove at least five million barrels per day in shipments from Ras Tanura — volumes that would be difficult to reroute quickly to ports like Yanbu on the Red Sea, especially with refining capacity already affected by the conflict.
