Why the Closure of the Strait of Hormuz Sent Fuel Prices Soaring — Even Though It Only Supplies a Fraction of the World's Oil

When Iran's Islamic Revolutionary Guard Corps declared the Strait of Hormuz closed to shipping from the United States, Israel, and their allies in early March 2026, the immediate reaction from some observers was: how bad could it really be? After all, the strait supplies only around 20% of global oil. Surely the world could find other sources?

Within days, the answer became painfully clear at petrol stations across the world. Oil prices surged by double digits. In the United States, the average price of a gallon of gasoline jumped by more than 50 cents. Goldman Sachs and Barclays analysts warned of Brent crude potentially touching $120 or even $200 per barrel if the crisis persisted. The International Energy Agency took the unprecedented step of releasing 400 million barrels from global strategic reserves — a move of last resort.

So what is going on? Why does closing a chokepoint that handles a fraction of global supply cause such an outsized shock to prices? The answer lies in how oil markets function, the irreplaceability of certain supply routes, and the particular psychology of commodity trading.

First, Let's Get the Numbers Straight

The "small percentage" framing needs important nuance. According to the U.S. Energy Information Administration, roughly 20 million barrels of oil and petroleum products passed through the Strait of Hormuz every single day in 2025 — equivalent to approximately 20% of global petroleum liquids consumption and more than a quarter of all seaborne oil trade. That is hardly a minor trickle. But more importantly, the strait is not the only commodity it carries. Around one-fifth of the world's liquefied natural gas also passes through it, primarily from Qatar. Up to 30% of global fertiliser exports also flow through the waterway. A closure is therefore not merely an oil story — it is a food security story, an energy security story, and an inflation story rolled into one.

Oil Is a Global Market — Price Pain Is Universal

Here is the crucial concept that explains everything: oil is priced on a single, globally integrated market. When supply is disrupted anywhere, the price goes up everywhere. This is why the United States — which produces more oil domestically than any other nation — has still seen gasoline prices spike sharply since the closure began. American refineries buy crude on the same global market as everyone else. When that market tightens, Americans pay more at the pump regardless of where their oil comes from.

The Chokepoint Problem: There Is No Easy Alternative

The Strait of Hormuz is a narrow, 21-mile-wide passage surrounded on three sides by Iranian territory. The vast majority of oil that enters the Persian Gulf has essentially no practical exit other than through this strait. Pipeline alternatives — the Abqaiq-Yanbu pipeline in Saudi Arabia and the Abu Dhabi Crude Oil Pipeline — can reroute only around 37% of normal Hormuz volumes at maximum theoretical capacity. The remaining 63% has nowhere to go. The only alternative for tankers is the Cape of Good Hope route — adding weeks to transit times and dramatically increasing costs.

The Insurance and Risk Premium Effect

Even for ships willing to attempt the route, war-risk insurance premiums surged to levels that made many voyages economically unviable. Protection and indemnity insurers effectively withdrew from the corridor entirely. Tanker traffic dropped by approximately 70%, with over 150 ships anchored outside the strait unwilling to risk either Iranian attacks or uninsurable losses.

Markets Trade on Fear, Not Just Current Supply

A critical driver of oil price spikes is not the oil unavailable today but the fear of how much might be unavailable tomorrow. Commodity traders price in uncertainty. When a major chokepoint closes with no clear timeline for reopening, futures contracts for months ahead shift dramatically even before a single barrel is physically delayed. The risk premium this adds — typically $10–30 per barrel — is real economic cost even if the underlying supply eventually proves adequate.

The Ripple Effects: From Fertiliser to Food

Higher oil prices feed directly into the prices of nearly everything else. Transport costs rise. Petrochemical inputs become more expensive. And the fertiliser disruption may prove the most consequential long-term impact: urea prices at the New Orleans fertiliser hub have risen from $475 to $680 per metric ton since the crisis began, with significant downstream consequences for food prices expected through the second half of 2026 and into 2027.

The Bottom Line

Twenty percent of global oil is not small in a market running on tight margins. There is no adequate pipeline substitute at scale. Oil prices are global — disruption anywhere hurts everyone. And markets price in fear as well as physical supply. Until the Strait of Hormuz reopens, the world's fuel prices will remain elevated — a reminder that in a globally integrated economy, a single narrow waterway can hold the entire system to ransom.