Twenty miles wide at its narrowest point, the Strait of Hormuz connects the Persian Gulf to the Gulf of Oman and the wider ocean beyond. Before the Iran conflict began in late February, roughly 20 million barrels of oil passed through it every day — approximately 20% of global supply. That flow has now been reduced to a fraction of its former volume. The consequences are visible in every market that touches energy: oil prices, bond yields, inflation expectations, equity volatility, and the policy calculus of central banks from Washington to London. The strait is not just a geographic chokepoint. It has become the single most important variable in global financial markets.

Brent crude reached $114.44 a barrel on 4 May, a near-6% single-session gain, following an escalation of hostilities over the waterway. As of mid-May, Brent has settled back toward $100 on intermittent peace talks, but remains dramatically above its pre-conflict levels. The volatility itself is now the story: three-week price swings of 10–15% in either direction are compressing planning horizons for energy-dependent businesses and forcing traders to navigate one of the most event-driven oil markets in decades.

How the Disruption Unfolded

On 28 February 2026, the United States and Israel began a campaign of military strikes against Iran’s nuclear facilities. Iran responded with strikes against regional US bases and attacks on energy infrastructure in neighbouring states. Critically, Iran also began attacking shipping in the Strait of Hormuz, resulting in a near-halt in commercial vessel transits through the waterway. The International Energy Agency estimated in mid-March that approximately 20 million barrels of oil per day had been affected by the reduction in strait traffic, with production in Gulf countries cut by at least 10 million barrels — around 10% of global output.

The disruption has compounded through supply chains in ways that go beyond crude oil. Liquefied natural gas exports from Qatar and the UAE have been severely curtailed: the UK House of Commons Library noted that UK wholesale natural gas prices rose roughly 75% between late February and 23 March. Fertiliser production in the Persian Gulf has been disrupted, raising agricultural input costs. Qatar, which produces approximately 30% of the world’s helium supply — a critical input for semiconductor manufacturing — has seen exports fall sharply. The energy shock is, at its base, an oil story. But it is reverberating through the economy in ways that pure crude oil price models do not fully capture.

The Market Response and Its Logic

Oil market pricing in a conflict scenario follows a familiar pattern: a rapid spike on the initial shock, followed by a period of elevated volatility as participants try to assess both the physical disruption and the probability of resolution. What is unusual about this episode is the duration. The strait has been effectively restricted for over two months, and each round of peace talks has so far ended without agreement. The Resolution Foundation, in its second-quarter macroeconomic policy outlook published this month, noted that at the conflict’s peak in April, crude oil cost $42 more per barrel than the day before the war began — a 57% increase, compared to a 36% peak increase in the 2022 Ukraine shock.

The price trajectory over the past two weeks illustrates the market’s sensitivity to diplomatic signals. Brent fell below $100 briefly on 7 May as reports circulated of a potential US–Iran framework agreement, only to recover toward $100–105 when Iranian officials appeared to rebuff the proposal. US crude settled around $95 on 6 May and climbed back toward $98 on 11 May as ceasefire talks stalled again. This is a market that is not pricing a single scenario but assigning continuous probability-weighted valuations to a range of geopolitical outcomes, any one of which can be revised within hours.

For energy traders, the key analytical question is what the forward curve is embedding. Elevated front-month prices with a backwardated structure — where near-term contracts trade above longer-dated ones — signal tight current supply and some expectation that conditions will ease over time. A shift toward contango, where longer-dated contracts carry a premium, would suggest the market is beginning to price sustained disruption into the structural outlook rather than treating the shortage as temporary.

What This Means for UK Investors

The United Kingdom is a net energy importer, which means the oil and gas price shock feeds directly into the domestic inflation outlook. The Resolution Foundation has estimated that a sustained return to recent price peaks would leave British households spending £11 billion more on fuel and energy in 2026 than they would have under pre-conflict price conditions — equivalent to 0.5% of aggregate household income. This is a smaller proportionate hit than the 2021–22 Ukraine shock, but it arrives when household finances remain under strain and before the Bank of England has fully brought inflation to target.

The Bank of England held its benchmark rate at 3.75% at its 30 April meeting, in an 8–1 vote. The single dissenter, chief economist Huw Pill, favoured a 25 basis-point increase. In its accompanying statement, the MPC noted that the conflict means “prospects for global energy prices are highly uncertain” and that inflation is “likely to be higher later this year as the effects of higher energy prices pass through.” The Bank set out three scenarios: in the most adverse, inflation peaks at 6.2% in early 2027 and Bank Rate rises to 5.25% by 2027 — a scenario the deputy governor described as “plausible.” The 10-year gilt yield has already traded above 5% as bond markets price some probability of this outcome materialising.

For UK equity markets, the direct beneficiaries of elevated oil prices are the integrated energy majors — BP and Shell — and the broader energy services sector. Companies with significant exposure to energy input costs, by contrast, face a more difficult operating environment. The IMF and OECD both downgraded their UK GDP growth forecasts for 2026 by 0.5 percentage points following the conflict’s outbreak, the largest downgrades of any major rich economy.

The determinant of how this resolves is not economic: it is geopolitical. A durable ceasefire and reopening of the strait would trigger a sharp reversal in oil prices and a rapid repricing of rate expectations in both the US and UK. The absence of a deal — or a further escalation — would embed elevated energy costs more deeply into the consumer price indices of every energy-importing economy. The next round of US–Iran diplomatic talks, and any indication from Tehran on the terms it will accept, is the most important near-term catalyst for energy markets. Until there is a credible path to reopening the strait, oil will remain the dominant macro variable in every asset class.