MW Why the Strait of Hormuz is now a primary focus of worry for oil prices and the global economy
By Isabel Wang
Israel's military strikes against Iran were roiling global financial markets on Friday, raising concerns that Tehran could possibly retaliate by targeting shipping through the Strait of Hormuz - one of the world's most vital energy transit chokepoints.
If that happens, it could disrupt oil and gas supplies, potentially unleashing a fresh wave of inflation across the globe.
"The primary market concern lies with Iran potentially closing the Strait of Hormuz, a critical chokepoint for global oil and gas," said Kristian Kerr, head of macro strategy at LPL Financial, in emailed comments.
Oil prices jumped as much as 14% overnight after Israel carried out airstrikes against Iran, but both the U.S. and global benchmarks were giving back over half of the gains on Friday.
The West Texas Intermediate crude oil for July delivery (CL.1) (CLN25) was still up 6.6% to trade at $72.61 a barrel as of 1:40 p.m. Eastern time, while Brent crude (BRN00) (BRNQ25) for August delivery was jumping 6.5% at around $73.90 a barrel.
The sharp rally put both the U.S. and global crude-oil benchmarks on pace for their largest one-day percentage increase so far in 2025, according to Dow Jones Market Data.
To be sure, concerns of a fresh global energy crisis are only speculative at this point, especially given that past geopolitical flare-ups have often led to only short-lived spikes in oil prices.
Yet market strategists warn that a major disruption to the world's energy supplies as a result of the closure of the Strait of Hormuz could spark a sharp and sustained uptick in oil prices, further fueling inflation pressures already squeezing consumers and businesses.
"Our comfort zone remains with oil prices in the $60 to $65 [per barrel] range, as sustained gains in energy prices could have a dire impact on inflation, reversing the months-long trend of cooling consumer prices in the U.S.," said a team of J.P. Morgan strategists led by Natasha Kaneva, head of global commodities research.
Kaneva earlier in the week warned that an attack on Iran could spike oil prices to $120 a barrel and drive the consumer-price index $(CPI.UK)$ to 5%.
The Strait of Hormuz, the waterway connecting the Persian Gulf to the Indian Ocean, sees roughly 20 million barrels per day of oil and oil products and 20% of the world's liquefied-natural-gas supply flow through. However, Iran has refrained in the past from closing the passageway, likely indicating a preference to avoid escalating conflicts "from hybrid warfare into a full-blown war," Kaneva and her team said.
Iran also would "almost certainly incur significant costs," J.P. Morgan team added, noting that any attempt to close the strait would be perceived not only as a violation of international norms but, more critically, as a direct threat to the economic interests of most Gulf states, including their primary customers in China, India, Japan and South Korea.
See: Why Israel's airstrikes in Iran are expected to have minimal impact on the U.S. economy
"Should Iranian oil production be temporarily disrupted, OPEC oil producers could choose to compensate for that. Also, the U.S. has strategic oil reserves that they could choose to sell if the market started tightening too much," said strategists at Danske Bank in Denmark.
Yet Tim Urbanowicz, head of research at Innovator, viewed the escalation between Israel and Iran as "adding additional fuel to the inflation narrative," as rising energy prices could feed through to various components of the consumer-price index.
The May CPI report on Wednesday showed headline inflation eased to a cooler-than-expected 2.4% last month from a year ago, while core CPI, a more closely watched measure that strips out volatile food and energy costs, increased 2.8% on an annual basis, also softer than expected.
U.S. stocks were lower on Friday early afternoon. The Dow Jones Industrial Average DJIA was tumbling over 600 points, or 1.4%, to trade near 42,350, while heading for a weekly loss of nearly 1%. The S&P 500 SPX was off 0.7% on Friday, and the Nasdaq Composite COMP was falling 0.6%, according to FactSet data.
-Isabel Wang
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(END) Dow Jones Newswires
June 13, 2025 13:56 ET (17:56 GMT)
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