Iran Just Closed the Strait of Hormuz

Iran Just Closed the Strait of Hormuz

You Probably Didn't Want This War. You're Probably Going to Pay for It Anyway.

Say what you want about Trump — and plenty of people are saying plenty right now — but the man ran on two things above almost everything else: peace and cheap energy.

Last Saturday, he may have put both at risk in a single morning.

U.S. and Israeli forces launched Operation Epic Fury, striking Iran's military and nuclear infrastructure and killing Supreme Leader Khamenei. Iran's response was immediate and chaotic — missile and drone barrages hitting Israeli territory, U.S. military bases across the Gulf, and energy infrastructure in Saudi Arabia and Qatar.

But Tehran didn’t just reach for its guns. It reached for something far more powerful: geography. Specifically, a narrow bottleneck at the mouth of the Persian Gulf called the Strait of Hormuz — the single most important oil transit chokepoint on the planet. Iran closed it.

A week ago, this is what it looked like.

Hundreds of tankers, moving in and out in an endless procession, carrying one-fifth of the world’s oil supply through a passage barely wider than the English Channel.

Today, that traffic is gone. Over 150 ships are anchored outside the strait, waiting. The ones that aren’t waiting have rerouted around the entire continent of Africa — adding weeks to their journey and billions to their costs.

Regular readers of this letter won't be entirely surprised — this is a risk I've written about before (here, for instance). But now that the hypothetical has become reality, it's worth digging into what actually happens next. Because whatever you think about the war itself — and polls decisively show that most Americans, across the political spectrum, are against it — the real story is energy. Not just for resource investors. For everyone. At the pump, at the grocery store, on your heating bill.

The 21-Mile Weapon

The Strait of Hormuz is such a big deal not because of what it is, but because of what's behind it: five of the world's top 10 oil-producing countries — Saudi Arabia, Iran, Iraq, UAE, and Kuwait — with virtually no alternative routes to global markets. Together, they account for roughly one-third of the world’s seaborne oil trade. Most of it has only one way out — a passage just 21 miles wide at its narrowest point.

The chart below shows where all that oil ends up.

Asia, overwhelmingly. China alone absorbed 4.6 million barrels per day through the strait in 2025 — around 40% of its total oil imports. “Other Asia” is even more exposed: Japan gets roughly 90% of its oil through Hormuz, South Korea around 70%, India over half. Together they absorbed another 6.2 million barrels per day through the strait.

Note: China has reportedly been allowed limited passage — but only after scrambling to lobby Tehran directly.

Let that sink in. These countries — the backbone of global manufacturing and trade — are running on fuel that has suddenly stopped flowing, with little to no alternative source at that scale. Yes, they have strategic reserves that buy some time. But disrupt their energy supply long enough, and you don't just get expensive oil. You get a global recession.

Which brings up a question many of you are probably asking right now: if this is so serious, why is crude only trading around $80 a barrel? Why isn’t it at $120 already?

Well, as it turns out, the market saw this coming. Bear in mind the current attack didn't happen in a vacuum. Last summer's 12-day war between the U.S., Israel, and Iran left traders nervous, and for good reason — as I argued at the time in a piece titled No, the War Isn't Over, the ceasefire was an intermission, not a resolution. Commodity traders had already positioned themselves heavily ahead of the strike, sitting on some of the largest speculative long positions in months. The risk was partly priced in before the first missile launched. Without that pre-positioning, we'd already be at $100 — at least. So the market's relative calm isn't evidence this isn't serious. It's evidence of how widely anticipated it was.

The Only Question That Matters

But here's the thing — how bad this gets depends entirely on how long it lasts. That's the question everything else hinges on.

A short war (with the strait closed for days rather than weeks) — painful but survivable. Gulf producers pre-loaded supply in anticipation, storage buffers exist, and markets are already partially priced in. Manageable.

A long war is a different animal entirely. Kurdish oil wells in northern Iraq are already being shut down — not because they’re under attack, but because storage is full and tankers can’t move. Once you shut a well, you can’t flip it back on easily. Permanent production damage is quietly accumulating right now, largely unreported. The longer this goes, the more of that damage becomes irreversible.

Your guess is as good as mine as to which of these scenarios becomes reality. What we do know is that Trump reportedly reached out to Iran’s leadership proposing a truce. Iran rejected it. And even if they do eventually shake hands on something, there’s another reason the strait may not reopen as quickly as markets hope — one that most people haven't considered.

It’s insurance.

Now, as you may know, every commercial vessel needs war risk insurance before it can sail into a conflict zone — and the Strait of Hormuz has carried elevated war risk premiums for years, given Iran’s presence on its northern shore.

So when the Islamic Revolutionary Guard Corps (IRGC) started threatening ships and tankers started getting hit, underwriters pulled coverage almost overnight. War risk premiums — normally around $250,000 per voyage for a large tanker — became either ruinously expensive or flatly unavailable. Shipping giants like Maersk, one of the world's largest container carriers, suspended all crossings. Others followed.

No policy, no passage. It’s that simple.

And here’s the thing: insurance markets don’t snap back just because politicians sign a piece of paper. Underwriters need to see sustained calm before they’ll write policies again. There's also the issue of mines — Iran has already loaded them onto vessels, and once laid, they don't disappear with a truce. The Red Sea offered a preview of this last year: even after the Houthi ceasefire, coverage took months to normalize.

My point is simple: even if Iran and the U.S. agree on a ceasefire tomorrow, the insurance market, the stranded tankers, the shut-in wells — none of that unwinds overnight.

Which brings up a question worth asking plainly: what exactly is the strategic logic here for Trump?

The man campaigned on peace, cheaper energy, and a weaker dollar. Setting aside the peace question entirely — that's a moral debate for another day — a prolonged Middle East war delivers the opposite on every count: oil spikes, the dollar strengthens as a safe haven, and inflation comes roaring back. That would make it very hard for Trump to get his lower rates from the Fed, even after Kevin Warsh replaces Powell in May.

And if this drags on, he risks delivering Democrats their dream scenario: a recession, just in time for the midterms.

Look, it's clear Trump wants none of these outcomes and was counting on a quick win here. But what I wonder is whether his ego is preventing him from seeing just how precarious a position he's put not just himself, but America — and quite possibly the world — in.

Now, I'm not in the same camp as the X crowd calling this the start of World War 3. But I do see how this could set off the kind of economic unraveling of epic proportions Doug Casey has been warning about.

Position accordingly.