For the US, the Strait of Hormuz blockage is a Price Shock and inflation problem, not a Supply Shock. For Europe & Asia, it could turn into a Supply Shock if the blockage persists.

By Wolf Richter for WOLF STREET.

Oil prices spiked further over the weekend. Sunday night, futures of WTI spiked by 28% to $116 per barrel at the moment, amid huge volatility, as traffic through the Strait of Hormuz essentially stopped, and speculation in the futures market went haywire. Since the beginning of March, the price of WTI futures has nearly doubled. This is the same market where the price of WTI futures dropped to an absurd negative -$37.63 per barrel in April 2020. Things can get a little crazy in the futures market.

For the US, this price spike is an inflation problem, and that has already started, and it comes on top of already accelerating inflation; but it’s not a supply problem because the US gets very little crude oil and petroleum products through the Strait of Hormuz.

But for Asia and Europe – in addition to being an inflation problem – it could also turn into a supply problem if the blockage persists, since these economies receive a substantial portion of their supply through the Strait of Hormuz.

Stocks in Asia plunged, particularly in Japan. The Japan’s Nikkei 225 plunged by 6.9% at the moment. Since last weekend, it has plunged by 12.1%. Other major markets took a smaller hit, at the moment:

• Hong Kong’s Hang Seng: -2.5%
• China’s Shanghai Stock Exchange: -1.2%
• India’s Sensex: -3.0%
• Singapore: -2.7%

The comical Kospi, a tiny stock exchange that had spiked like a meme stock through February, is down 7.5% for today at the moment, and by 19% from its peak at the end of February.

US stock futures are all in the red at the moment:

• Dow futures: -2.1%
• S&P 500 futures: -2.0%
• Nasdaq futures: -2.3%

The US Treasury 10-year yield jumped by 6 basis points in overnight trading, to 4.21% at the moment, in slow recognition of the inflation problem coming its way.

For the US, it’s another price shock, not a supply shock. In 2024, the US imported about 0.5 million barrel per day of crude oil and condensate through the Strait of Hormuz, the lowest in nearly 40 years, accounting for 7% of total crude oil and condensate imports and for only 2% of US petroleum liquids consumption, according to the EIA.

The US is the largest producer of crude oil and petroleum products in the world, and exports more than it imports.

US refineries import crude oil and export diesel, gasoline, jet fuel, and other petroleum products.

In 2025, the US exported 10.7 million barrels per day (MMb/d) of crude oil and petroleum products.

Of the 6.7 MMb/d of petroleum products that it exported, 2.8 MMb/d were finished motor gasoline, distillate (such as diesel), jet fuel, and petroleum coke; and 3.1 MMb/d were propane, ethane, butane, and natural gasoline (a liquid hydrocarbon mixture of pentanes and heavier compounds that is blended with gasoline to change the ratings for octane and vapor pressure).

Even refineries in “oil island” California are doing it. The US exported 1.1 MMb/d of petroleum products, mostly diesel and gasoline, to Mexico (here is the WOLF STREET discussion of US production, imports, and exports).

So for the US, this is a “price shock” – another one of many, the last oil price shock having come in 2021 through mid-2022.

It’s not a supply shock, such as the US experienced in the 1970s, when the Organization of Arab Petroleum Exporting Countries imposed a total oil embargo against countries, such as the US, that had supported Israel during the 1973 Yom Kippur War. At the time, the US was critically depended on this supply, and shortages arose, along with price spikes.

But for Asia and Europe it could turn into a “supply shock.” If traffic through the Strait of Hormuz doesn’t recommence relatively soon, it would hit supply at the local level. They have strategic petroleum reserves, and other storage facilities. So for some time, there will be enough supply. But eventually, supply in those areas is going to take a hit unless traffic through the Strait of Hormuz resumes.

Not all crude oil from the Middle East goes through the Strait of Hormuz: Saudi Arabia and the UAE have large-capacity pipelines that bypass the Strait of Hormuz. The EIA reported:

“Saudi Aramco operates the 5 million-b/d East-West crude oil pipeline, which runs from the Abqaiq oil processing center near the Persian Gulf to the Yanbu port on the Red Sea. Aramco temporarily expanded the pipeline’s capacity to 7.0 million b/d in 2019 when it converted some natural gas liquids pipelines to accept crude oil.

“The UAE also operates a pipeline that bypasses the Strait of Hormuz. This 1.8 million-b/d pipeline links onshore oil fields to the Fujairah export terminal in the Gulf of Oman.

“The pipelines do not typically operate at full capacity, and we estimate that about 2.6 million b/d of capacity from the Saudi and UAE pipelines could be available to bypass the Strait of Hormuz in the event of a supply disruption.”

The “price shock” in the US becomes inflation quickly. Spiking oil prices drive up consumer price inflation, such as measured by the Fed’s preferred PCE price index or by CPI, in two ways: directly very quickly, and indirectly over time.

Consumers get hit directly and immediately by spiking gasoline prices – and they have already started spiking, though the supply situation is unchanged.

Gasoline futures spiked by 16% from Friday, amid huge volatility, to $3.18 at the moment in overnight trading on Sunday. They have been rising all year, from about $1.71 at the end of December (daily chart via Investing.com):

Consumers may get hit indirectly by higher fuel prices as shipping costs rise that companies eventually add to product prices or shipping charges.

Airfares are heavily dependent on consumers being willing to pay higher fares, but a lot of airline travel is discretionary, and consumers tend to delay travel, or forego it, when fares are too high, and as demand sags, airlines end up cutting fares and eating the higher fuel costs – the portion they didn’t hedge – and lose money, and their stocks crater all over again.

Ground transportation prices, such as rideshare fares, could eventually rise.

The huge petrochemical industry in the US is a massive buyer of petroleum products. It produces all kinds of materials that form the basis for plastics, synthetic fibers, building materials, fertilizers, lubricants, adhesives, and many other products. The industrial giants in the petrochemical industry buy their products largely with long-term contracts and are not directly impacted by sudden spikes in futures prices. But if those futures prices stay high enough for long enough, it will impact their costs.

So the all-items PCE price index and the all-items CPI for the month of March, to be released in April, will reflect the price spike in gasoline in March. The indirect cost increases will be slower to come to the surface.

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