Less than three years after the disruptions of the pandemic and the war in Ukraine subsided, the world economy confronts another sustained energy and supply chain shock. The war launched by the United States and Israel against Iran, and Iran’s retaliatory strikes against US military assets and oil production infrastructure across the Persian Gulf, have brought shipping through the all-important Strait of Hormuz to a near standstill. The International Energy Agency (IEA) has declared the closure the “largest supply disruption in the history of the global oil market.”

Some 34 percent of globally traded crude oil, 19 percent of liquefied natural gas (LNG) exports, and 16 percent of the trade in refined petroleum products such as diesel and jet fuel travel through this narrow passage between the Arabian Peninsula and the Iranian coast. Although Iranian officials had claimed that non-US and non-Israeli affiliated vessels may transit unharmed, the marine insurance industry responded by canceling war risk coverage for commercial shipping effective March 5. Transit collapsed by 80 percent thereafter and now stands at close to zero.

The situation has been compounded by Iran’s targeting of refineries and storage facilities in Kuwait, Bahrain, Iraq, Qatar, the United Arab Emirates, and Saudi Arabia. With shipping halted and storage insufficient, most petroleum and liquefied gas production in the region must eventually be shut down — and requires weeks to restart and reach full capacity. Iran has stated clearly that it is leveraging the choke point at Hormuz to exert pressure and deter future aggression. Neither side has shown any sign of relenting.