Strait of Hormuz closure tipping point for global economy may be near

While oil shipments through the Strait of Hormuz have come to a halt due to Iran’s threat of attack on ships, Americans are cautiously watching pump prices. The IEA took an unprecedented step on Wednesday, saying it would extract 400 million barrels of oil from the reserve. But oil is far from the only product on which the world economy is heavily dependent on the shallow and narrow waterway that connects Persian Gulf ports to the rest of the world. From the metal market to agriculture to automotive, the virtual closure of the strait will have repercussions on business sectors and both the US and world economies.

Aluminum is a good example. This is one of the biggest losses in non-oil trade of the US-Iran war. In 2025, the Middle East accounted for approximately 21% of raw aluminum imports and 13% of wrought aluminum imports, and these percentages are increasing. Unwrought aluminum is raw, unprocessed metal in forms such as ingots and billets; Wrought aluminum, on the other hand, is mechanically shaped into sheets, bars, or other finished forms that are used directly in manufacturing.

“The situation in Iran is impactful and industry concerns may increase as the conflict continues,” said Matt Meenan, spokesman for the Aluminum Association, a trade organization that represents the U.S. aluminum industry. “This is an extremely dynamic situation,” Meenan said.

The longer the conflict in the Middle East drags on, the more it will suffer from the supply of products Americans expect to have on shelves.

“The Gulf is a major supplier of aluminum and disruptions could tighten supply chains for advanced manufacturing,” said Tony Pelli, supply chain security and resilience practice director at BSI Consulting, a global risk management firm. “Aluminum prices are already rising, and further cuts could increase input costs for automotive, aerospace and construction manufacturing in the U.S. and Europe.”

Pelli said the grocery store could be affected. “Fertilizer represents one of the biggest downside risks. Approximately one-third of global fertilizer trade passes through the Strait of Hormuz, including large-volume nitrogen exports,” he said.

New Orleans fertilizer center urea prices have already increased from $475/metric ton to $680/metric ton. “It’s not good timing for soybean and corn planting in the Midwest,” said Darrell Fletcher, managing director of commodities at Bannockburn Global Forex, an Ohio-based foreign exchange and risk management firm.

If these shipments are blocked during the spring planting season, it could hurt food inflation, according to Pelli.

Petrochemical inputs, plastics, rubber, electronics, batteries, pharmaceuticals and sugar are among other inputs and sectors facing supply chain stress, said Craig Geskey, vice president of strategic solutions at logistics and transportation management company Traffix.

If disruptions in the Strait of Hormuz force ships to divert, disruptions in inland ports could escalate rapidly. “It may take 10-14 days for the initial ocean impact to occur, but the real pressure usually occurs within 2-5 weeks as diverted containers arrive in clusters, terminal congestion increases, and freight demand outstrips truck and chassis availability,” Geskey said.

Disrupted trade routes also reduce the availability of empty containers, shrinking export capacity in other markets, including North America. This can lead to missed appointments, higher demurrages (fees shippers pay to store cargo in ports for longer periods of time) and severe congestion in already strained ports.

Major global shipping companies Maersk and Hapag-Lloyd have already suspended their Middle East routes.

“I’ve seen a lot and I tend to stay level-headed on big market moves – and I still think the market is underestimating the conditions here,” Fletcher said. “Time will tell, but the shutdown is creating bottlenecks every day and the problem is growing exponentially,” he added.

He noted that it only took five days of war to cause massive disruption in Asian economies and warned that a tipping point could be near.

“I think if there isn’t a solution within a week, the markets will reflect that and that will be reflected in prices relatively quickly. I’m still very cautious defensively, given the disruption that has occurred, the lack of a clear solution to date, and what it will take to get back to ‘normal’, whatever that looks like,” Fletcher said.

Moody’s also thinks a prolonged shutdown would hurt many industries.

“For many commodities moving across the Bosphorus to Asian and European markets, stocks typically only cover a few weeks, meaning shortages could occur relatively quickly if disruptions persist,” said Andrei Quinn-Barabanov, head of supply chain industry at Moody’s.

Significant amounts of petrochemical and plastic raw materials also pass through Hormuz and many industries. “About 85% of polyethylene exports from the Middle East go through this route. Shortages and backlogs will increase prices of packaging, automotive parts and consumer goods,” said Usha Haley, a professor and supply chain expert at Wichita State University’s Barton School of Business.

Higher retail prices and less risk of economic activity

As the U.S. government and its allies look for ways to keep trade flowing through the strait, some supply chain experts point to reasons why much of the shipping has been able to remain stable. First, although non-oil ships can be harassed by Iranian speedboats, seizing cargo containers has no value to Iran. Reports as of Tuesday that the US Navy was escorting ships across the strait were incorrect, but the US could put plans in place to prevent Iran from seizing the ships, and US air power and missiles could destroy Iranian missile batteries that might try to attack the ships.

Haley said new marine insurance measures could make it more affordable for shippers to sail through the strait, but insurance rates would rise sharply. “All these factors will spill over into global supply chains and cause consumer prices to rise overall within about a month. We are entering a period of higher inflation and declining production,” he said.

Iran has reasons to limit trade disruptions. “They need oil, otherwise they have no money” from Quantum Strategy David Roche told CNBC: I mean Iran. “There is some motivation not to attack Western shipping so they can export their own oil,” Roche said, predicting that the strait would partially reopen within two to three weeks, which would take the “advantage” of the crisis and allow tankers and cargo ships to begin passing through.

Iran continued to ship millions of barrels of oil to China during the conflict.

If the situation does not improve, bumps may appear in unexpected places, such as the clothing racks of your favorite store.

“The risks are particularly serious for the Asian garment industry, which relies on petrochemicals shipped across the Bosphorus to produce synthetic fabrics,” said Quinn-Barabanov. “Aluminium shipments traveling through the waterway from the UAE may also be affected; disruptions are likely to manifest as higher prices due to the metal’s widespread use in industrial production and the limited ability of many producers to carry large stocks. Similar supply pressures could affect Australian and other agricultural producers, particularly through fertilizer shipments passing through the Bosphorus.”

While inflation remained stable in the government’s latest consumer price index report released on Wednesday morning, many economists and consumers remain worried about a potential war-related increase. Retail is a good example of where industries and consumers will be exposed to higher energy, fuel and logistics costs.

“For retailers, all of this means higher logistics costs and potential inventory delays, which often translate into higher shelf prices or tighter margins on groceries, consumer goods and imported products,” said Nishith Rastogi, CEO and founder of logistics optimization technology company Locus.

Freight reroutes often extend end-consumer delivery times by one to 10 days or more while increasing costs by 5% to 20% through transferred surcharges.

Rastogi said retailers can reduce the impact by improving routing efficiency, truckload utilization and mode choices so fewer kilometers are exposed to fuel variability in the first place, but added that “unmanaged rerouting risk impacts both reliability and wallets.”