Iran’s recent actions, particularly the parliamentary vote to consider shutting down the Strait of Hormuz, represent a significant challenge to global energy security. This escalation, a direct retaliation against a US attack, has ignited fears of a severe oil supply shock that could trigger widespread economic damage. The International Monetary Fund’s chief, Kristalina Georgieva, has warned that US strikes on Iran could inflict significant damage on global growth.

The Strait of Hormuz is a pivotal shipping channel, through which a fifth of the world’s oil consumption flows. Any impediment to this flow would create an immediate oil supply shock, leading to surging energy prices, inflationary pressures, and a significant drag on global economic activity. While oil prices initially reacted strongly to the Iranian threat, jumping over 5% on Sunday, they later pared some gains, with Brent crude settling near $76 a barrel on Monday.

However, the potential for much higher prices persists, with Goldman Sachs estimating that oil could hit $110 a barrel if Hormuz flows are halved for a month and then remain 10% lower for the subsequent eleven months. This forecast underscores the catastrophic economic consequences of a prolonged disruption in this critical waterway.

In a diplomatic effort to avert such a crisis, US Secretary of State Marco Rubio has forcefully stated that closing the strait would be “economic suicide” for Iran, appealing to China to exert its influence given its heavy reliance on Hormuz for oil. Meanwhile, analysts at RBC Capital Markets are cautioning against complacency, highlighting a “clear and present risk of energy attacks” from Iranian-backed militias and emphasizing the fluidity of the current geopolitical landscape.