The Federal Reserve Bank of Dallas has indicated that if oil shipping disruptions through the Strait of Hormuz—caused by conflict involving Iran—continue through June, the annualized global economic growth rate for the second quarter could decline by 2.9 percentage points.
Approximately one-fifth of the world's oil supply is transported through the Strait of Hormuz, which has been largely closed due to hostilities. This has pushed the price of West Texas Intermediate crude above $97 per barrel.
Researchers at the regional Federal Reserve bank modeled the economic consequences of various durations of closure for this critical maritime passage. If the strait reopens after one quarter, oil prices would fall back to $68 per barrel in the third quarter, while global GDP growth would increase by 2.2 percentage points.
According to the researchers, if the closure persists for two quarters, oil prices could rise to $115 per barrel in the third quarter before declining to $76 in the fourth quarter. A three-quarter closure could push prices as high as $132 per barrel by year-end.
Economists are closely monitoring the effects of surging prices for gasoline, diesel, and other petroleum products on inflation and demand.
Some economists note that rising gasoline prices have already led to reduced spending in other categories. U.S. consumers are adopting various strategies to cope with higher fuel costs, including cutting back on travel and waiting in line at gas stations to save a few cents.
This week, the U.S. average price for diesel fuel surpassed $5 per gallon for only the second time in history, impacting the economy because diesel powers nearly all industrial sectors.
