The global economy faces a significant threat of a downturn mirroring the 2008 Great Recession if the vital Strait of Hormuz faces a prolonged blockade. This stark warning comes from Rapidan Energy Group, an advisory firm closely monitoring the volatile geopolitical situation involving the United States and Iran.
Hormuz Closure: Oil Prices and Economic Fallout
Rapidan Energy Group's analysis indicates that a closure of the Strait of Hormuz, even if temporary, could lead to severe disruptions in global oil supply. Their base-case scenario, assuming the waterway reopens by July, projects an average oil demand reduction of 2.6 million barrels per day. Consequently, the spot-market price for benchmark Brent crude could spike to nearly $130 a barrel over the summer months.
Should the disruption extend beyond July, Rapidan warns of an even greater need for demand erosion to offset the supply shock through August and September. Such a prolonged event could potentially trigger an annual decline in global oil consumption for 2026, a rare occurrence with far-reaching economic consequences.
US-Iran Tensions Escalate
The advisory firm's warning comes amidst persistent tensions between the United States and Iran. Both nations maintain opposing stances regarding Tehran’s uranium stockpile and the control of the Strait of Hormuz. While US Secretary of State Marco Rubio reportedly noted "some good signs" in ongoing talks, the underlying disagreements remain profound.
US President Donald Trump has reiterated Washington's intention to recover Iran’s highly enriched uranium, which the US believes is intended for nuclear weapons, a claim Tehran denies, asserting its peaceful purpose. Trump has also indicated readiness to resume strikes on Iran, initially launched in late February alongside ally Israel, if "right answers" are not received from Iranian leadership. Iran's Revolutionary Guards have, in turn, threatened retaliation beyond the region if attacks resume.
Supply Deficits and Inventory Concerns
A delay in reopening the Strait of Hormuz until August would significantly deepen the third-quarter supply deficit to approximately 6 million barrels per day. This situation would arise just as global crude inventories approach operationally challenging levels. Even with an early-August restart, markets would remain tight before any relief is felt, as inventories continue to decline into September while Arab Gulf production gradually rebounds and shipments begin reaching destinations.
Several leading forecasters have already anticipated a rare contraction in worldwide oil demand for the current year, exacerbating the potential impact of a Hormuz closure.
Comparing to Past Crises
Oil prices have nearly doubled since late February, fueled by the conflict involving the US, Israel, and Iran, which has upended global markets and ignited concerns about simultaneous inflation spikes and growth slowdowns. Rapidan analysts acknowledge that the current macroeconomic environment is "less extreme than the 1970s or 2007 to 08," citing economies that are less oil-intensive and possess more credible monetary policy frameworks.
"But that relatively stronger starting point doesn’t neutralise the risk that continued oil price spikes would exacerbate financial and macroeconomic vulnerabilities," Rapidan analysts wrote in their note.
The volatility in oil prices was evident in recent trading sessions, with prices whipsawing lower on Thursday due to uncertain prospects for a resolution to the ongoing conflict.