Summary
The Federal Reserve Bank of Dallas' research team modeled the economic consequences of a full shutdown of the Strait of Hormuz linked to the Iran war. Their central finding: if the strait remains closed through June - effectively halting the passage of oil and other shipments - annualized global GDP growth would be 2.9 percentage points lower in the second quarter.
Model scenarios and price paths
The Dallas Fed researchers ran scenarios for several shutdown durations and the resulting effects on oil prices and quarterly GDP. Under a scenario in which the strait reopens after one quarter, the model projects that oil prices would decline to $68 per barrel in the July-to-September quarter, and global GDP growth would rebound by 2.2 percentage points over that same period.
If the closure stretches to two quarters, their projections show oil rising to $115 per barrel in the third quarter before easing back to $76 in the final quarter of the year. In a still-longer disruption - a three-quarter closure - the researchers estimate oil could climb to $132 per barrel by year-end.
Market signals and current conditions
About one-fifth of global oil supplies transit the Strait of Hormuz, and the researchers note the route has been effectively closed as a result of the Iran war. That dynamic has contributed to the price of West Texas Intermediate crude topping $97 per barrel.
Economists are paying close attention to the inflationary and demand-side consequences of higher prices for gasoline, diesel and other petroleum products. Several observable consumer responses are already present in the data cited by the researchers: higher gasoline costs are coinciding with reduced spending elsewhere, and some households are seeking ways to lower the impact of fuel prices by traveling less or spending time finding cheaper pumps.
Fuel costs for businesses are also relevant. The average price for a gallon of diesel in the United States surpassed $5 this week for only the second time in history. The researchers underscore that diesel is a critical input across many sectors because it powers a wide range of industries, amplifying the economic effect of sustained price increases.
Implications emphasized by the analysis
The Dallas Fed models tie the duration of the shipping disruption directly to both near-term oil price spikes and the consequent drag on global economic activity. Shorter disruptions allow for a relatively rapid drop in oil prices and a rebound in growth, while prolonged closures drive higher peak prices and larger, more persistent hits to GDP.
The researchers frame these outcomes in terms of measured changes to quarterly growth rates and oil price paths rather than broader policy prescriptions or second-order effects beyond what their scenarios quantify.