If Iran shuts down the Strait of Hormuz, the global economic fallout could be immediate and serious.
On June 21, the U.S. Air Force launched direct strikes on Iranian nuclear facilities at Fordow, Natanz, and Isfahan, deploying B-2 bombers armed with bunker-busting munitions. The attacks marked the beginning of direct American involvement in another Gulf war, more than 22 years after the U.S. invasion of Iraq.
The current war began on June 13, when Israel launched a surprise offensive against Iranian nuclear and other military targets. Since then, the United States has played a supporting role, supplying Israel with military equipment and helping intercept incoming Iranian missiles. With Saturday’s American bombing campaign, the conflict has entered a new phase, one whose trajectory remains uncertain.
If the war escalates, the consequences could be significant, not only in terms of human lives lost and displaced, but also economically and geopolitically. A broader conflict in the Gulf would almost certainly disrupt global oil supplies, particularly if Iran follows through on its threat to close the Strait of Hormuz.
On Sunday, June 22, within hours of the U.S. bombing, Iran’s parliament voted to shut the V-shaped waterway, which connects the Persian Gulf to the Gulf of Oman and serves as a vital artery for much of the world’s oil. If the country’s Supreme National Security Council ratifies the decision, the global economic fallout could be immediate and serious.
The Strait of Hormuz is one of the world’s most critical maritime chokepoints. Between a fifth and a quarter of the global oil supply and nearly a third of the world’s liquefied natural gas pass through its narrow waters. Each day, an estimated $1 billion worth of crude oil, originating from Saudi Arabia, the UAE, Qatar, Kuwait, and Iran, flows through the strait, making it an essential artery for global energy markets.
There are already reports of oil tankers reversing course in response to Iran’s threat to close the Strait of Hormuz. CNBC, citing data from Kpler, reported that at least six carriers have diverted their routes away from the critical waterway.
If the Strait is closed, oil prices are almost certain to surge.
JPMorgan analysts warned that in a worst-case scenario involving supply disruptions, oil prices could surge into triple digits, potentially reaching as high as $130 per barrel.
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Similarly, Goldman Sachs said that Brent crude, a major global benchmark for the price of oil, could climb to $110 per barrel if Iran follows through on its threat to close the Strait. Oil prices have already shown volatility in response to the escalating conflict. Following the U.S. airstrikes, Brent crude surged, reaching as high as $76 a barrel, nearly 14% higher than its level just 10 days earlier.
A spike in crude prices frequently increase transportation and manufacturing costs, which raise the prices of goods ranging from food to consumer products. Fuel costs also push up expenses in sectors like farming, logistics, and air travel. If that occurs, Americans, already strained by inflation in the years following the pandemic, will feel the pinch.
Additionally, beyond the immediate economic shock, a prolonged military engagement could strain U.S. resources, deepen instability across the Middle East, and potentially draw in other nations, especially Russia, further complicating an already volatile situation.
“[He] did not know that it was easier to start a war than to end one,” the narrator in Gabriel García Márquez’s masterpiece “One Hundred Years of Solitude” observes of a character, Colonel Aureliano Buendía. It’s an eternal truth about all wars, that feels especially relevant now that the United States is directly involved. How long will it remain entangled in this conflict and what will be the consequences?
If history is any guide, the answer is troubling. American military engagements in the Middle East have tended to expand in both scope and duration. Consider the two major wars the United States has fought since the beginning of this century: those in Iraq and Afghanistan. Together, they cost American taxpayers more than $3 trillion and exacted a heavy toll in blood.
Before the 2003 Iraq War, the Bush administration projected a price tag of around $100 billion, plus change. In reality, that war ended up costing U.S. taxpayers more than $1.9 trillion, including interest payments on the money borrowed to finance it.
As Nobel laureate Joseph Stiglitz and Harvard economist Linda Bilmes argue in their book “The Three Trillion Dollar War: The True Cost of the Iraq Conflict,” the actual cost of war is often far higher than official estimates, once long-term expenses like veterans’ care, interest on borrowed funds, and broader economic impacts are taken into account.
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There’s a reason modern warfare comes with staggering costs. From precision-guided missiles to advanced surveillance and drone systems, today’s military technology is extremely expensive. For example, the six B-2A Spirit bombers the U.S. deployed on Saturday, are estimated to cost $2.13 billion each.
Donald Trump returned to the White House with a clear message: he would steer America away from foreign entanglements. He campaigned against the so-called “forever wars,” criticizing previous administrations, both Democratic and Republican, for embroiling the U.S. in long, costly conflicts with no clear exit strategy.
Trump vowed to end the war in Ukraine and bring peace to the Middle East, particularly in Gaza quickly. Despite his bold rhetoric, those conflicts continue, and now, with the United States actively striking Iranian nuclear sites, the risk of the U.S. being drawn into a potentially prolonged war has increased dramatically.
If Iran’s retaliation leads to a sustained disruption in global energy markets, American consumers will bear the brunt of higher prices. If the war drags on, the U.S. may once again find itself overextended, economically, militarily, and diplomatically.
Finally, in addition to disrupting markets and supply chains and generating significant economic costs for the U.S., a third Gulf War could further reshape the global economic order, accelerating China’s ascendancy.
While Washington diverts its attention and resources to another volatile theater in the Middle East, Beijing may continue expanding its global influence, economically, technologically, and strategically, without firing a single shot.
When the U.S. waged the First Gulf War in 1990 to oust Saddam Hussein from Kuwait, China’s GDP stood at just $360 billion. Since then, with a laser focus on growth, China has expanded its economy 48-fold, transforming itself from a marginal player into the world’s second-largest economy. Over the same period, the U.S. economy grew a mere sixfold.
In moments like these, it is easy to lose sight of the long game. But the United States must not forget the larger strategic picture and the real and full costs of a war for the military, U.S. citizens, and the world.
(Frank F. Islam is an entrepreneur, civic leader, and thought leader based in Washington, DC. The views expressed here are personal.)