Chapter 1: What is the economic impact of the largest oil supply disruption in history?
Welcome back to The Rundown for another weekend deep dive. Earlier today, Iran announced the Strait of Hormuz is open to commercial shipping. The market is celebrating oil prices dropped 10 percent, the S&P hit record highs, and Trump is saying the Strait is open and ready for business. So is the oil crisis now over?
Well, it's possible, but there are many mines in the water still, ship owners are refusing to send their vessels through, and Iran says they can shut down the whole thing again if the ceasefire doesn't hold. And even if everything goes perfectly from here, the economic damage from the last seven weeks is already baked in.
Gas prices are over $4 a gallon, Europe is staring down a jet fuel shortage, and the Fed is openly worrying about stagflation. So in today's episode, we're going to break down how much economic damage has already been done from the oil shock, why Iran's economy held up better than anyone expected, and how long it will take for things to get back to normal now that Hormuz is officially open.
We got a great one for you today. Let's dive in. The world just experienced the largest energy shock in history. Before the conflict with Iran started on February 28th, about 20 million barrels of oil per day flowed through the Strait of Hormuz. That's roughly 20% of the world's total oil supply. Well, after the bomb started dropping, the flow basically stopped overnight.
Chapter 2: How did the closure of the Strait of Hormuz affect global oil prices?
The Strait of Hormuz was closed for the first time in history. According to an estimate from Goldman Sachs, the flow through the Strait of Hormuz dropped 97% from normal levels. So we went from 20 million barrels a day to just 0.6 million. Now, some of that oil has been redirected via pipelines. Saudi Arabia has an east-west pipeline. The UAE also has a pipeline.
But these pipelines don't even come close to replacing the volume that was normally moving through Hormuz. And then when you factor in attacks on oil infrastructure across the Gulf region, Goldman Sachs estimates the total hit to Persian Gulf oil flow is about 17.6 million barrels per day, which is about 17% of global supply. So that supply shock sent oil prices soaring.
Before the war started, Brent crude was trading around $65 a barrel, but by early April, it had nearly doubled to $128 a barrel. And the pressure kept escalating. Just this Monday, the U.S. military began a full naval blockade of Iranian ports, further choking off supply. And then today happened.
On Friday morning, April 17th, Iran's foreign minister said the Strait of Hormuz was open to commercial traffic following the ceasefire between Israel and Lebanon, and oil prices are now dropping.
Chapter 3: What factors contributed to the rise in diesel prices during the oil shock?
As I record this, Brent crude is now trading under $90 a barrel, while WTI is trading around $84 a barrel. So So prices have come a long way down from their peak earlier this month, but they're still about 35% higher than where they were before the war started. And even a full reopening of Hormuz doesn't mean things will go back to normal right away.
The closure of the Strait of Hormuz for the last month has sent shockwaves across the global economy. So let's talk more about that, starting with what happened to Iran's economy. You know, this might be kind of surprising to hear, but the war has been a big boost to parts of Iran's economy.
You would think a country at war getting hit with daily airstrikes would crush their economy, and for regular Iranians, it has, but for the people at the top, business has never been better. See, Iran has what The Economist calls a K-shaped wartime economy. The civilian economy was in rough shape even before bombs started dropping.
Last year, Iran's economy shrunk with about 6 in 10 working-age Iranians estimated to be unemployed and inflation at nearly 50%. And the war made everything worse. Imports have basically stopped. The UAE, which accounted for nearly a third of Iranian imports in 2025, hasn't sent a single ship since it became a target of Iran's retaliation early in the conflict.
The UAE has also shut its borders to most Iranians and started cracking down on thousands of shell companies that helped Iran dodge sanctions.
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Chapter 4: How has Iran's economy fared during the recent conflict?
So the average Iranian citizen is feeling the economic pain. But Iran's military economy is thriving. The Iranian regime, specifically the Islamic Revolutionary Guard or IRGC, is insulated from a lot of the civilian pain because they control the oil. And up until recently, Iran was exporting its oil as the war continued. See, the IRGC runs a sophisticated smuggling operation.
Their oil tankers get escorted through a narrow corridor hugging Iran's coast. They spoof their locations, they forge documents, and they do ship-to-ship transfers off the coast of Malaysia before oil reaches its destination. Overall, Iran was estimated to be exporting around 2.4 to 2.8 million barrels of oil. and petroleum products per day through March.
That's roughly the same volume as before the war started. And because global oil prices have surged, Iran was now earning nearly twice as much per barrel. It's not really a secret, but most of Iran's oil was being sold to China. China buys more than 90% of Iran's oil exports, usually through teapot refineries and opaque financial channels.
Payments often happen outside the dollar system, which makes sanctions harder to enforce. So China has essentially been Iran's economic savior.
Chapter 5: What role does China play in Iran's oil exports?
Their oil purchases alone account for about 45% of Iran's entire government budget. But that changed starting this past week. The U.S. Navy set up a blockade in the Strait of Hormuz, blocking ships from going to and from Iranian ports. The US military says it turned back around 19 ships and zero have broken through. So for the first time, Iran's oil lifeline to China was under threat.
And it could be a big reason why Iran is now open to peace talks and reopening the Strait of Hormuz. Now, what's interesting here is that President Trump said that despite Iran opening the Strait of Hormuz, the U.S. Navy will continue its blockade on Iranian ports until a full deal with Iran is reached. Iran said that if the U.S.
doesn't lift its naval blockade, they'll shut the Strait of Hormuz back down. So there's a little bit of uncertainty there. I mean, we should get more information over the next few days, but there is a possibility that Iran just shuts the Strait of Hormuz back down. And that would continue to wreak havoc on the global economy.
Chapter 6: What are the implications of stagflation for the U.S. economy?
So the Strait of Hormuz might be reopening, but let me walk you through the economic damage that's already been done with the Strait being closed for the last six plus weeks. The most obvious impact has been gas prices. The national average for the gallon of gas in the U.S. just crossed $4 for the first time since August of 2022. But here's the thing that should be concerning you even more.
Diesel hit $5.45 a gallon nationally, which is up 45% in just the past six weeks. And diesel is the fuel that powers the trucks, trains, and ships that move everything in the world. So when diesel prices start spiking, those costs typically get passed down to groceries and construction materials and Amazon packages, basically everything that gets shipped before you buy it.
So consumers tend to feel that pain. Not to mention fertilizer prices are spiking right now, which means that food prices could go up next. The New York Fed President John Williams gave a speech this week saying the war has intensified the uncertainty around the economy. And he warned about the threat of stagflation. Stagflation is when prices keep going up while economic growth slows down.
It's basically the worst combination for the economy because there's no easy fix.
Chapter 7: How are European and Asian economies affected by the oil crisis?
So rising oil prices have kind of forced the Fed to rethink the timing of rate cuts. Before the war, the market was pricing in two rate cuts for the year. Now the odds of just one rate cut is around 30%. So if you were waiting for some relief on borrowing costs this year, well, the war just pushed that further out. But look, all things considered, the U.S.
should be able to handle the oil shock better than other countries. For one, the U.S. is now the largest producer of oil and natural gas in the world. On top of that, the U.S. is way more energy efficient compared to past energy shocks like the 1970s. But the same can't be said for countries in Europe and Asia. You know, Europe is getting hit hard.
Natural gas prices nearly doubled in Europe since the war began. The head of the International Energy Agency warned that Europe has maybe six weeks of jet fuel left before they have shortages. And he called this the largest energy crisis the world has ever faced.
Chapter 8: What are the potential long-term effects of the oil shock on global markets?
And you got to remember, Europe is just recovering from an energy crisis caused by the Russia-Ukraine war. So this is round two for them in a very short amount of time. Asia is also in some trouble. China, India, Japan, and South Korea all depend heavily on oil that flows through the Strait of Hormuz. China alone gets about half of its oil imports through that waterway.
And that's why Goldman Sachs has lowered their GDP forecast for China and most Asian economies because of higher energy costs. And then the Gulf countries themselves are getting crushed. Goldman Sachs estimates that the GCC countries, including Saudi Arabia, UAE, Kuwait, and Qatar, are collectively losing around $700 million in oil revenue every single day.
So some of these economies could see a bigger GDP hit than what they experienced during COVID. But look, now with the Strait of Hormuz opening back up, that should relieve some of the economic stress. But you gotta keep in mind, it could take weeks, maybe months, for things to return to normal. So what's my take here?
Well, the Strait of Hormuz reopening is a big deal, and I'm hopeful that a broader peace deal gets done. But there are some reasons to be cautious. For one, ship owners are still taking a wait and see approach when it comes to crossing Hormuz. Bloomberg interviewed a lot of shipping companies, and many of them are waiting for other companies to cross Hormuz before crossing themselves.
And I'm sure a lot of these shipping insurance companies are waiting for more clarity or a security guarantee before crossing the strait. So it could be weeks before traffic resumes to normal levels. Not to mention the strait being open hinges on the ceasefire holding. That seems to be working out so far, but it's still a pretty fragile situation.
But look, I'm generally an optimistic person and I hope that everything works out. But even if everything does go perfectly from here and ships start flowing through Hormuz tomorrow, the oil supply doesn't just bounce back. So when you shut down oil production or an oil well, you can't just flip a switch and turn it back on. Wells need to be restarted. Pipelines need to be checked.
Storage backlogs need to be cleared. So again, it could take weeks, maybe months for oil from the Gulf countries to get back to pre-war production levels. So I think we can still feel some economic shockwaves from this war for a few weeks. I gotta say though, the market seems to think the worst is behind us.
The S&P 500 bottomed out in late March and has been rallying since March 30th, hitting all time highs this week. Look, I'm not gonna lie, I was kind of surprised to see the market rally the way that it was over the last couple of weeks, but clearly the market had this one right. Well, all right, guys, that's it for today's weekend deep dive. Hope you guys enjoyed today's episode.
Now let me know in the comments what you guys think about the whole Hormuz situation. Do you think the ceasefire will hold? Do you think that traffic will resume? Drop your comments on Spotify and YouTube. A little behind the scenes here. We kind of had to adjust the script of this episode on the fly because new information was breaking as I was recording this deep dive.
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