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Iran’s escalating conflict with Israel has taken a perilous turn, with Tehran issuing a stark threat to close the Strait of Hormuz, a critical chokepoint for global oil and liquefied natural gas (LNG) trade. The warning, made in retaliation for Israel’s recent airstrikes on Iranian nuclear and military facilities, has rattled financial markets, driven up oil prices, and raised fears of a broader economic crisis. As tensions in the Middle East intensify, the world watches anxiously to see whether Iran will follow through on its threat, which could disrupt nearly 20% of global oil supplies and destabilize the global economy.
The Threat: A Geopolitical “Nuclear Option”
On June 18, 2025, Iranian officials, including senior members of the Islamic Revolutionary Guard Corps (IRGC), reiterated their capability to blockade the Strait of Hormuz, a narrow waterway between Iran and Oman that serves as the primary conduit for oil exports from the Persian Gulf. The threat came in response to Israel’s ongoing military campaign, which began on June 13 with strikes on Iran’s nuclear facilities, missile factories, and senior military commanders. Iranian state media reported that the attacks have killed over 220 people, including civilians, and damaged key infrastructure, including the Shahran oil depot and South Pars gas field.
Iran’s foreign minister declared Israel’s actions “an act of war,” and Tehran has vowed a “harsh response.” Among the retaliatory measures under consideration is the closure of the Strait of Hormuz, through which approximately 20 million barrels of crude oil and refined products—nearly 30% of global oil trade—pass daily. The strait also handles about 20% of global LNG exports, primarily from Qatar and the United Arab Emirates (UAE). A full or partial closure would choke off supplies from major producers like Saudi Arabia, Iraq, Kuwait, and the UAE, sending energy prices soaring and exacerbating global inflationary pressures.
“Iran has the capability to close the Strait of Hormuz if necessary,” IRGC Navy Commander Alireza Tangsiri stated earlier this year, a sentiment echoed in recent statements. Posts on X reflect growing alarm, with one user noting, “If Iran actually shuts the Strait of Hormuz, expect oil to rocket and global markets to wobble—energy supply shock territory.”
Why Now? The Israel-Iran Conflict Escalates
The current crisis stems from a dramatic escalation in the decades-long rivalry between Israel and Iran. On June 12, the International Atomic Energy Agency (IAEA) declared Iran non-compliant with its nuclear obligations for the first time in 20 years, citing evidence of uranium enrichment beyond civilian needs. The following day, Israel launched a sweeping air offensive, targeting Iran’s Natanz nuclear facility, missile production sites, and key IRGC commanders, including Mohammad Bagheri and Hossein Salami.
Israel’s Prime Minister Benjamin Netanyahu justified the strikes as a preemptive measure to prevent Iran from developing nuclear weapons, a threat he described as “existential” to Israel. Iran retaliated with ballistic missile and drone attacks on Israeli cities, including Tel Aviv and Haifa, killing at least 24 people. The tit-for-tat strikes, now in their seventh day, have raised fears of a full-scale regional war, with Iran’s threat to close the Strait of Hormuz amplifying the stakes.
Iran has historically used the strait as leverage in geopolitical disputes. During the 1980s Iran-Iraq War, dubbed the “Tanker War,” both sides targeted oil tankers in the Persian Gulf. More recently, Iran threatened to close the strait in 2012 to counter Western sanctions and again in February 2025 amid U.S. pressure. While a complete closure has never occurred, the mere threat has proven sufficient to roil markets, given the strait’s unparalleled importance to global energy flows.
Market Turmoil: Oil Prices Surge, Stocks Wobble
The financial fallout from Iran’s threat was immediate and severe. Since Israel’s initial strikes on June 13, Brent crude, the global oil benchmark, surged from $70 to over $77 per barrel, a 10% increase. Prices peaked at $78 on June 13 before cooling slightly to $73.23 by June 16, as markets assessed that Iran’s oil export infrastructure, notably Kharg Island, remained intact. However, renewed threats to the Strait of Hormuz have reignited volatility, with analysts warning that a disruption could push prices to $100-$120 per barrel.
Global stock markets have also been rattled. On June 13, the S&P 500 fell 1.1%, its worst one-day drop in a month, while Asian and European indices, including Germany’s DAX, saw sharp declines. By June 16, markets rebounded slightly, with the S&P 500 rising nearly 1%, as investors bet on a contained conflict. However, strategists caution that complacency could be dangerous. Russ Mould of AJ Bell warned that markets may be “underpricing the risk of a major conflagration in the Middle East,” particularly in energy markets.
Safe-haven assets like gold and the U.S. dollar have rallied, reflecting investor unease. The cryptocurrency market, however, has slipped, with Bitcoin falling over 3% to $104,826.78 since June 13. Posts on X highlight trader sentiment, with one user stating, “Iran threatened it would close off the Strait of Hormuz if its refineries were threatened. Markets could "react sharply".
Economic Implications: Inflation and Supply Shocks
The Strait of Hormuz is a lifeline for the global economy, channeling 70% of Asia’s oil imports, with China, India, and Japan among the largest recipients. A disruption would eliminate the expected oil surplus for Q4 2025, tightening global supplies and forcing price hikes. Goldman Sachs estimates that a halt in Iranian oil shipments alone could push prices to $100 per barrel, while a full strait closure could drive them to $120.
Such a surge would intensify inflationary pressures worldwide. A 2019 analysis found that every 10% increase in oil prices adds 0.4% to consumer prices over the following year. In the U.S., where energy costs are a key inflation driver, this could reverse recent progress in cooling consumer prices, which rose just 0.1% in May 2025. JPMorgan Chase analysts warned that “sustained gains in energy prices could have a dire impact on inflation.”
Europe, heavily reliant on Middle Eastern LNG, faces additional risks. A closure would disrupt 20% of global LNG trade, exacerbating competition with Asia and driving up gas prices, which remain elevated since Russia’s 2022 invasion of Ukraine. Central banks, already grappling with U.S. tariff policies, would face a dilemma: balancing higher energy-driven inflation against slowing economic growth.
Iran’s Capabilities: A Credible Threat?
Iran’s ability to close the Strait of Hormuz is rooted in its asymmetric naval capabilities. The IRGC Navy operates speedboats, suicide drones, and uncrewed surface vessels capable of kamikaze attacks, as demonstrated in Houthi operations in the Red Sea. Iran has also developed anti-ship missiles and mines, which could target tankers or create hazardous conditions for maritime traffic. A 2017 U.S. Department of Defense report highlighted Iran’s advanced drone technology, noting its ability to track and engage moving targets.
However, analysts question whether Iran would follow through, given the self-destructive nature of such a move. Closing the strait would slash Iran’s own oil revenue, critical for its economy amid sanctions, and provoke a military response from the U.S. and Gulf allies. The Joint Maritime Information Centre (JMIC) reported on June 16 that the strait remains open, with 954 vessels passing through in the prior week, a 5% increase. Still, the threat alone has heightened caution, with tankers maintaining greater distance from Iranian ports.
U.S. and Global Response: A Delicate Balance
The U.S. has sought to distance itself from Israel’s strikes, with President Donald Trump insisting Washington was not involved but warning Iran against attacking U.S. interests. The U.S. has bolstered its military presence in the region, deploying jets and the USS Nimitz aircraft carrier. Traders on Polymarket, a crypto prediction platform, estimate a 64% chance of U.S. military action against Iran before June 30, reflecting fears of escalation.
Gulf states like Saudi Arabia, Kuwait, and the UAE, which rely on the strait for oil exports, are under pressure to align with the U.S. The G7, at its June 2025 summit in Canada, affirmed Israel’s right to self-defense but called for restraint to avoid a wider conflict. Meanwhile, airlines have suspended flights to Iran, Iraq, Jordan, and Lebanon, and regional airspace closures have disrupted global aviation routes.
A Bluff or a Breaking Point?
Many analysts view Iran’s threat as a bargaining chip, aimed at pressuring the West into ceasefire talks or easing sanctions, as it did in 2012. However, the unprecedented scale of Israel’s attacks and Iran’s weakened proxies—Hamas and Hezbollah—may limit Tehran’s options, pushing it toward desperate measures. The targeting of Iran’s oil and gas infrastructure, including the Shahran depot, has already strained its fuel distribution, potentially fueling domestic unrest.
For now, the Strait of Hormuz remains operational, but the threat of closure looms large. As one X user put it, “Iran is threatening to close the Straits of Hormuz, blocking 30% of global oil supply. The trade war ‘pause’ is set to expire in less than two weeks. Markets are on edge.” The world’s energy markets, already strained by geopolitical and trade uncertainties, face a critical test as Iran and Israel edge closer to a point of no return.
What’s Next?
The trajectory of oil prices and global markets hinges on the conflict’s escalation. If Iran’s energy infrastructure remains largely intact and the strait stays open, analysts expect oil prices to stabilize around $75-$80 per barrel. However, a prolonged conflict or any move to disrupt the strait could trigger a supply shock, with catastrophic economic consequences.
Investors are advised to stay vigilant, with some strategists recommending gold and other safe-haven assets to hedge against volatility. For policymakers, the challenge is to contain the conflict while addressing the inflationary risks of higher energy prices. As the Israel-Iran war enters its seventh day, the Strait of Hormuz remains the world’s most precarious chokepoint, and Iran’s threat to close it a sobering reminder of the fragility of global trade.