Oil at $110: What the Hormuz Crisis Means for Inflation and Markets

Photo: AI Generated / TheMarketContext.com

Three weeks ago, a barrel of oil cost roughly $70. Today it costs $110. That is a 57% surge in less than a month — and its effects are already showing up at gas stations, in the Federal Reserve’s forecasts, and in the earnings guidance of every company that moves things, makes things, or flies people places.

The trigger is a military conflict in the Middle East that has effectively shut down the Strait of Hormuz — the narrow waterway through which roughly 20% of the world’s daily oil supply flows. Understanding what that means, and what policymakers are doing about it, is the story this Friday morning.

The Strait of Hormuz: The World’s Oil Chokepoint

The Strait of Hormuz is a roughly 21-mile-wide passage between Iran and Oman connecting the Persian Gulf to the Arabian Sea. Every day, approximately 21 million barrels of oil travel through it via tanker. When that corridor closes, there is no easy alternative route — the geography simply does not allow it.

Since late February, shipping traffic through the strait has fallen to a fraction of normal levels. Few tankers are willing to risk the threat of attack, and the disruption has removed a significant share of Middle Eastern crude from global markets almost overnight.

Neil Atkinson, former head of oil at the International Energy Agency (IEA — the global body that coordinates energy policy among major economies), called the effective closure “something energy markets had never seen before,” warning on CNBC that unless the situation resolves quickly, “we are in a potentially game-changing and unprecedented energy crisis.”

Daan Struyven, head of oil research at Goldman Sachs, described the disruption as “the largest oil supply shock on record” — surpassing the 1973 OPEC embargo and the 1990 Gulf War in terms of its immediate impact on global oil flows.

The Price Shock in Plain Numbers

Brent crude — the international benchmark price that the world uses to reference the cost of oil — touched $119.50 per barrel at its peak before settling back. As of Friday morning it trades around $110. WTI (West Texas Intermediate, the U.S.-specific benchmark) sits near $96 per barrel, up from roughly $67 before hostilities began.

At the pump, Americans are feeling it directly. The national average for a gallon of regular gasoline reached $3.84, up from $2.98 just one month ago — a 29% increase in 30 days. The last time gas prices rose this fast in a single month was in the wake of Hurricane Katrina in 2005.

Airlines, shipping companies, chemical manufacturers, and any business with petroleum-heavy inputs are all absorbing significantly higher costs. How much of that passes on to consumers versus gets absorbed into margins is a calculation playing out in boardrooms across every industry right now.

The Federal Reserve’s Dilemma

On Wednesday, the Federal Reserve held its benchmark interest rate steady at 3.5%–3.75% — widely expected. But the accompanying projections told a more complicated story.

Fed officials revised their 2026 inflation forecast upward, from 2.4% to 2.7%, citing the oil price surge as a primary driver. The FOMC (Federal Open Market Committee — the group of officials that sets U.S. interest rates) voted 11–1 to hold. But internally the gap is wider: seven of 19 FOMC members now favor zero rate cuts this year, the widest internal split in several years.

Fed Chair Jerome Powell acknowledged that higher energy prices will “push up overall inflation” but said it remains “too soon” to know the full economic impact. The Fed now faces a difficult fork: cut rates to support growth in a slowing economy, or hold firm — or potentially hike — to prevent inflation from re-accelerating. Neither path is straightforward with oil at $110 and rising gas prices hitting household budgets in real time.

What Policymakers Are Doing

The response has been significant. Last week, the IEA coordinated its largest emergency reserve release in history — 400 million barrels from member countries’ strategic stockpiles — with the U.S. committing 172 million barrels from its Strategic Petroleum Reserve (SPR) over 120 days. The SPR is the U.S. government’s emergency oil supply, stored in underground salt caverns along the Gulf Coast.

Treasury Secretary Scott Bessent announced this week that the U.S. is also weighing whether to lift sanctions on approximately 140 million barrels of Iranian oil currently sitting in tankers at sea. Removing those sanctions would allow that supply to enter global markets. Bessent estimated the move would “help keep prices down for the next 10 to 14 days” — a short-term bridge, not a structural fix.

Israeli Prime Minister Benjamin Netanyahu said Thursday that Israel is assisting U.S. efforts to reopen the strait and that Iran “no longer has the capability to enrich uranium or produce ballistic missiles.” Signals toward de-escalation have nudged oil prices lower on individual days, though the situation remains fluid.

What to Watch

Federal Reserve / Economic Calendar: The next FOMC meeting is scheduled for May 2026. If oil prices remain elevated or climb further, the case for rate cuts weakens considerably. Watch the March CPI report (due mid-April) and weekly jobless claims for early signals of whether the oil shock is broadening into wider inflation.

Earnings: Airlines (Delta, United), trucking companies, and consumer goods manufacturers with petroleum-heavy supply chains report Q1 results starting in mid-April. Margin guidance will show how much of the fuel cost increase is being passed to consumers versus absorbed internally.

Broader Market: The S&P 500 energy sector has outperformed sharply since late February. A reversal in energy stocks would be one of the first signals that markets are pricing in a faster-than-expected resolution to the Hormuz disruption — worth monitoring closely.