During the planning stages for an eventual military conflict between the United States and Iran, officials did not fully appreciate what the impact on both the economy and the world would be if Iran decided to use the closure of that shipping route as a military strategy.
The meetings that included members of the Department of Energy (DOE), Treasury, and other government departments to discuss the potential emergency did not have the proper analysis of the overall impact of a closure of the Strait of Hormuz on the economy.
While Secretary of the Treasury Scott Bessent and Secretary of Energy Chris Wright were in consultation for these planning sessions, the bulk of the decision-making was done by a smaller group of close advisers to President Trump. The majority of officials did not believe that it was probable that Iran would close the shipping corridor since this would likely offset any economic gains, and most of the assumptions were based on prior instances where Iran had threatened to do the same but never acted.
Should access to the Strait of Hormuz be cut off, the ramifications for world shipping and energy markets would be catastrophic. Nearly all crude oil and liquefied natural gas produced in the world move through the Strait of Hormuz each day.
In addition, many energy shippers and shipping companies have requested that the United States Navy provide protection to oil tanker shipments moving through the area. Sources have reported that military officials have thus far declined those requests for naval escorts on the grounds of a lack of available ships to provide escort, and therefore, the escort would present security issues.
Currently, Iranian capabilities (drones, missiles, sea mines) present a significant threat to all vessels operating through the corridor. Therefore, all forms of military escort to protect vessels present a substantial degree of risk.
At the same time, recent statements attributed to the new prominent leader of Iran, Mojtaba Khamenei, appear to suggest that the closure of the Strait of Hormuz will remain as leverage in the continuing conflict.
These developments leave the United States and its allies with limited options at reinforcing the stability of global energy markets or protecting safe passage in a shipping corridor.
To reduce the stress on energy markets, U.S. officials are weighing multiple economic approaches. Potential measures being considered include suspending sanctions on limited Russian oil shipments and/or possibly modifying the Jones Act to maximize available modes of transportation.
While experts have indicated that these economic measures would reduce pressure on the energy marketplace, none of the measures under consideration would provide sufficient economic compensation for the anticipated rise in fuel prices resulting from worldwide supply disruption caused by political/military violence in the Persian Gulf.
The recent events demonstrate how quickly geopolitical uncertainty within the Persian Gulf region can affect international energy markets, with the result expected to significantly alter military and economic policies over the next several weeks.
