The Middle East has been unstable for decades. Markets have largely learned to ignore it — to price in a certain level of background risk and move on.
That is a dangerous habit. Because the Middle East is not just a geopolitically important region. It is the oil storage tank of the planet. And when that tank gets punctured, the whole world economy bleeds.
The Strait of Hormuz: The World's Most Important Waterway
You may not know the Strait of Hormuz by name, but your bank account knows it very well.
This narrow strip of water — just 33 kilometres wide at its narrowest point — separates Iran from Oman and the UAE. Every day, around 20 million barrels of oil pass through it. That is roughly 20% of the world's entire daily oil consumption in one chokepoint.
If anything disrupts that flow — an Iranian military action, an accident, a deliberate blockade — oil prices would spike within hours. Not days. Hours. The futures markets would react immediately, and petrol station prices would follow within days.
Iran has threatened to close the Strait multiple times. It has never fully done so, but the threat alone has moved oil markets by $10 to $15 per barrel.
The Red Sea Crisis: Already Playing Out
The Houthi attack campaign on Red Sea shipping that began in late 2023 is still ongoing. This is not a closed chapter — it is an active disruption.
Before the crisis, around 12% of global trade passed through the Red Sea and Suez Canal. That route is now largely avoided by major shipping companies. Ships are rerouting around the Cape of Good Hope, adding two to three weeks to journeys and significant fuel costs.
The effect on inflation is real and ongoing. Shipping costs from Asia to Europe are still elevated. Delivery times are longer. Insurance premiums for ships in the region are higher. All of this feeds into the cost of goods.
The Iran Variable
Iran is the single biggest wildcard in Middle East energy risk. As a major oil producer and the country with the most direct ability to disrupt Hormuz, any significant escalation involving Iran would have immediate global consequences.
Iran's nuclear programme remains unresolved. Sanctions on Iranian oil exports limit supply. Any deal that lifts sanctions could flood markets with oil and push prices down. Any military action against Iran's nuclear facilities could push prices sharply higher.
Markets are not pricing in either scenario adequately. They are assuming the current stalemate continues indefinitely. History suggests that is optimistic.
What This Means For Inflation Right Now
With Brent crude at $101 and Middle East tensions as high as they are, the risk of an oil price spike is real. A spike to $120 or $130 would push inflation significantly higher in energy-importing economies — Europe, Japan, India, most of Africa.
Central banks, which have been cautiously cutting rates after the 2022-2023 inflation surge, would be forced to pause or reverse. Mortgage rates would stay higher for longer. Consumer spending would slow.
One incident in a 33-kilometre strait could change the economic outlook for billions of people.