The Strait of Hormuz is often called the world’s jugular vein, and for good reason. Just 21 miles wide at its narrowest point, this strip of water between Oman and Iran usually carries 20% of the world’s liquid energy every single day.
Since the outbreak of the Iran war on February 28, that vein has been pinched shut. With tanker traffic down over 90%, we are witnessing the most significant energy supply disruption in modern history.
You could say that the global oil markets are in… dire straits.
Here’s how the silent strait is rewriting the rules for oil and forex markets.
What Happened?
On February 28, the United States and Israel launched coordinated airstrikes on Iran under Operation Epic Fury. The strikes killed Supreme Leader Ali Khamenei and targeted nuclear sites and military leadership.
Iran’s response was immediate: its Islamic Revolutionary Guard Corps (IRGC) warned vessels that no ships would be permitted to pass, then began striking tankers with drones to prove the point.
The closure wasn’t achieved with mines or a naval blockade. A handful of cheap drone strikes was enough to make shipping insurers pull their war-risk coverage — and without insurance, no captain sends a ship through. It was, in effect, an insurance-driven shutdown. Just 21 tankers transited the strait in the weeks following February 28, compared with more than 100 ships daily before the conflict.
Iran has since installed a de facto “toll booth” charging some vessels up to $2 million for safe passage and demanding documentation on crew and ownership before approving any transit. Nearly 2,000 vessels are stranded on both sides of the strait, with 20,000 sailors trapped aboard.
The $100 Floor: Why Oil Refuses to Drop
In the first week of the conflict, Brent crude spiked to just under $120 per barrel. It has since stabilized in the $100–$113 range — roughly 40% above pre-war levels — and analysts see little reason for it to fall while the strait stays closed.
The math is simple but brutal. About 20 million barrels of oil per day normally pass through the Strait. While some can be rerouted through pipelines in Saudi Arabia and the UAE, the IEA estimates that 16 million barrels per day remain completely trapped. One oil expert put the geopolitical risk premium at roughly $40 per barrel above what fundamentals alone would justify.
This isn’t only a crude oil story. The strait also handles 20% of global Liquefied Natural Gas (LNG) — the gas that heats homes and powers factories, shipped in specialized tankers. Qatar, one of the world’s biggest LNG exporters, declared force majeure on its contracts (a legal clause for “unforeseeable circumstances prevent delivery”), causing gas prices in Asia and Europe to roughly double.
The result is a twin shock: expensive transport and expensive heat, hitting the global economy at the same time.
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The Forex Fallout: Winners and Losers
In forex markets, currencies are proxies for a nation’s economic health. When the oil tap turns off, some act like lifeboats and others begin to sink.
The US Dollar (USD): A double-win. In a typical crisis, traders buy dollars for safety. In this one, they’re buying dollars because the U.S. is also a massive energy producer. Unlike the oil shocks of the 1970s, America now exports its own oil and gas, making the dollar a hedge against both war risk and rising energy costs.
The Japanese Yen (JPY) and Euro (EUR): Caught in the squeeze. Japan imports nearly all of its energy, much of it through the now-closed strait. As the cost to buy oil (priced in USD) rises, Japan must sell yen to buy those expensive dollars, devaluing the currency further.
USD/JPY hit a 20-month high near the 160.00 level in March, even though the yen is traditionally a safe-haven currency. Japan’s energy import bill overwhelmed its safe-haven status! Similarly, Europe’s industrial base faces a stagflation trap, forcing the ECB to abandon its rate cut consideration.
The Comdolls: Unexpected winners. The Canadian Dollar (CAD) and Norwegian Krone (NOK) — “commodity currencies” tied to oil production outside the conflict zone — have strengthened against both the yen and the euro. When oil stays above $100 and the producers are safe from the fighting, their currencies follow the price higher.
Oil Importer Currencies: Under pressure. Currencies like the Australian Dollar (AUD), Indian rupee (INR), and Korean won (KRW) face sustained selling pressure. Oil-importing economies must convert their local currency to dollars to pay for expensive energy, a structural drain that doesn’t stop until the strait reopens.
What Traders Should Watch Next
Demand destruction
If oil pushes toward $150, the world doesn’t just pay more; it starts pulling back. Factories slow, travel cools, and output takes a hit. That’s how tight supply stories can flip fast into demand collapse, dragging commodity currencies with them. No ceasefire needed. The reversal can come out of nowhere.
The shadow fleet
Some tankers are still getting through, running dark with transponders off and routes quietly cleared by the IRGC. If more of this traffic shows up, it could ease some of the pressure on prices and take a bit of heat off energy importers. Not a solution, but enough to matter at the margins.
Bab el-Mandeb: The second chokepoint
Bab el-Mandeb isn’t getting as much attention as Hormuz, but it should be. This narrow passage between Yemen and the Horn of Africa handles a huge chunk of global trade. The Houthi movement has already shown it can disrupt Red Sea shipping, and it has made it clear that closing the strait is still on the table. Iran has also hinted that another chokepoint could come into play.
If both routes get hit at the same time, we could be looking at a serious supply shock. Tankers would have to reroute around the Cape of Good Hope, adding weeks to delivery times and pushing costs sharply higher. That kind of setup could choke off Gulf exports to Europe and send oil ripping higher in a hurry.
Central bank pivots
In a normal cycle, higher inflation means higher rates. But if this turns into a full-blown energy shock, central banks like the Federal Reserve and European Central Bank may have to sit tight instead of tightening further. That tradeoff between inflation and growth is where things get messy, and where FX volatility tends to stick around longer than people expect.
The Bottom Line
Oil kicked things off, but now it’s about where this goes next. Every day the strait stays closed, the risk premium baked into every barrel stays elevated. The moment a credible ceasefire shows up, this premium can disappear fast and likely trigger a sharp unwind.
For forex traders, the chain reaction is straightforward: oil feeds into inflation, inflation shapes central bank decisions, those decisions drive interest rates, and rates move currencies. Right now, every part of that chain is under pressure.
Keep an eye on USD/JPY, EUR/USD, and crosses tied to commodity currencies. Headlines around a ceasefire, tanker flows, and central bank signals are doing the heavy lifting.
And whatever position you’re running, keep it light. One headline can flip the entire setup in seconds.
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