A prolonged closure of the Strait of Hormuz could push the price of Brent crude oil to $150 per barrel, renew inflation, and force major central banks to raise interest rates.
Energy markets have coped with the disruptions caused by the Iran conflict by rerouting pipeline flows and drawing down inventories. About a third of the oil previously transported through the Strait has been rerouted through alternative regional infrastructure.
However, these buffers are depleting. Commercial oil inventories in OECD countries are at their lowest levels in recent memory, leaving the market with limited capacity to withstand a new supply shock.
The baseline scenario assumes the disruptions will be temporary: Brent will reach $80 and $75 per barrel in the third and fourth quarters, respectively. Options markets indicate that traders still view this outcome as the most likely, although the likelihood of a sharp price spike has increased.
If the strait remains closed, oil could initially rise to $120. In a more unfavorable scenario, Brent could reach $150 from the current $84, and European natural gas prices would rise to €90 per megawatt-hour from €54.
Such a rise would push US inflation to nearly 5% and slow annual economic growth to below 1% in the second half of 2026. Annual US economic growth would decline to 1.7%, compared to 2.2% in the baseline forecast.
Europe would face a more significant stagflationary shock. Eurozone growth would plateau in 2026, and inflation could peak above 6%. The UK would be on the brink of recession, with inflation there potentially reaching 7%. Asian economies will also feel pressure. China's export support from electric vehicles and other green energy products may weaken as high energy costs deter consumers from large purchases. India's growth rate in 2026 could slow to 5.5%, down from 6.5% in the baseline scenario.
Central banks will likely respond by tightening policy to prevent energy cost increases from being passed through to wages and broader prices. The unfavorable forecast suggests year-end rates of 4.63% in the US, 3.25% in the eurozone, and 4.75% in the UK.
China helped balance the oil market by cutting crude imports by more than 40% year-on-year in June and drawing down domestic inventories—but this strategy cannot continue indefinitely.