Iran's closure of the Strait of Hormuz after the U.S.-Israeli attack on February 28 amounts to the largest disruption of global energy flows in history, according to the International Energy Agency. Within three weeks, oil prices rose 55 percent, gasoline jumped by roughly a dollar a gallon, and many countries began rationing fuel, shortening workweeks and closing factories.
Writing in Foreign Affairs, energy scholars Jason Bordoff and Meghan L. O'Sullivan argue that the crisis, while unprecedented in scale, follows a pattern first seen in 1973 when Arab OPEC members embargoed oil exports and traumatized American consumers. The lessons drawn from that shock - build strategic reserves, deepen market integration, improve data transparency - helped make oil markets more flexible. But they did not eliminate vulnerability, as reported by Foreign Affairs.
Roughly 20 percent of the world's oil and liquefied natural gas transit the strait each day. Analysts and officials had warned for decades that it was vulnerable, yet the speed with which a single chokepoint could paralyze the global economy still came as a surprise. Even though Iran was badly outmatched militarily, it managed to exert effective control over shipping through the strait.
The authors point out that integrated markets served a dual function during the crisis. Strategic oil reserves and coordination through the IEA partially offset lost supply, and market-based pricing allowed physical flows to adjust. But because oil is traded globally, the same integration that softens the blow of local supply shocks also ensures that price increases hit consumers everywhere - including in countries that produce more than they consume.
Bordoff and O'Sullivan warn that when traffic through the strait effectively halted, "markets reallocated energy in response to price signals" - the same mechanism that helped Europe replace Russian pipeline gas in 2022 and Japan fill its post-Fukushima energy gap in 2011. The paradox, they argue, is that interconnection remains indispensable for reallocating supply after a disruption, even as globally set prices broaden the reach of distant shocks.
Subsequent Iranian and Israeli strikes on key energy installations in the region only deepened the crisis. The authors argue that the world "never escaped the reality of oil geopolitics" and warn that until the strait reopens, prices will continue to climb, boosting inflation and dampening economic growth across every major economy.
Earlier, "Hvylya" reported on how America's Asian allies have discovered a critical strategic weakness the Iran war laid bare.