Why unrest in the Strait of Hormuz is leading to rising oil and gasoline prices

Oil prices spiked for the second consecutive day on Tuesday as the U.S.-Israeli war with Iran rattled global markets and drove up gasoline prices in the United States.

The chaos unfolding across the global economy stems in large part from a narrow but crucial waterway along the southern coast of Iran: the Strait of Hormuz.

The strait facilitates the transport of about one-fifth of the global supply of crude oil and liquid natural gas. Those products hold major implications for the prices of gasoline, plastics and European electricity, among a host of other goods.

A commander in Iran’s Islamic Revolutionary Guard Corps said late Monday that the Strait of Hormuz had been closed, according to remarks made on Iranian State TV.

A day earlier, tanker traffic through the strait had already slowed dramatically, according to an analysis of shipping data issued by S&P Global.

In a post on social media on Tuesday, President Donald Trump ordered the federal government to provide "political risk insurance and guarantees for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf."

"If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible. No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD," Trump added.

Speaking at the Oval Office earlier in the day, Trump acknowledged the recent rise in oil prices as a result of the war with Iran. Still, he downplayed the risk of a long-term spike.

"As soon as this ends, those prices are going to drop," Trump said.

Here’s what to know about the Strait of Hormuz and why it matters for oil and gas prices:

What is the Strait of Hormuz?

The Strait of Hormuz is a waterway that runs along the southern coast of Iran and the northern coast of Oman.

The passage marks the only shipping route that stretches from the Persian Gulf to the open ocean, making it a key travel hub for goods originating in oil-rich Gulf countries like Saudi Arabia, Qatar and Iran. At its narrowest point, the Strait of Hormuz is just 21 miles wide.

In 2024, an average of about 20 million barrels of oil per day passed through the Strait of Hormuz, which amounts to roughly 20% of liquid petroleum consumed worldwide, according to the U.S. Energy Information Administration, or EIA, a government agency.

"The Strait of Hormuz is the single most important global oil transit chokepoint," Timothy Fitzgerald, a professor of business economics at the University of Tennessee who studies the petroleum industry, told ABC News.

The vast majority of oil that passes through the strait is bound for Asian markets. Nearly 5 million barrels of oil arrived in China via the Strait of Hormuz each day last year, the EIA said, while about 2 million barrels of such oil ended up in India on a daily basis.

By comparison, the U.S. imported just 500,000 barrels of oil each day via the Strait of Hormuz.

What does the unrest in the Strait of Hormuz mean for oil and gas prices?

The closure of the strait would push up oil and gasoline prices worldwide, even though crude shipped through the waterway goes primarily to Asia.

Since oil is sold on a global market, a significant shortage in any given region can result in major price hikes worldwide, analysts previously told ABC News.

Oil prices soared for a second consecutive day as of Tuesday afternoon, spiking more than 13% in less than 48 hours. Those gains came on top of a roughly 5% increase in February as U.S.-Iran tensions grew.

The price of Brent crude stands at about $82 per barrel, putting it well above a price of about $68 at the beginning of February.

A prolonged halt of traffic in the Strait of Hormuz would amount to a "major supply shock," Gregory Daco, chief economist at EY-Parthenon, told ABC News in a statement.

Oil prices, Draco added, could soar by "more than $40 per barrel, climbing toward $110 and remaining above $100 through year-end."

A rise in the price of oil typically pushes up the price of auto gasoline, since crude makes up the main ingredient of car fuel.

The national average price of gasoline in the U.S. spiked about 11 cents overnight to $3.11, ratcheting up the price nearly 8% from where it stood one month earlier, AAA said on Tuesday.

The jump in gasoline prices on Tuesday marked the largest single-day jump since March 2022, just weeks after the Russian invasion of Ukraine, Patrick De Haan, the head of petroleum analysis at GasBuddy, said in a post on X.

The average price of a gallon of gas now stands higher than it did a year ago, reversing a drop in price that had been repeatedly touted by Trump as a sign of progress in his administration’s fight against inflation.

European natural gas prices spiked nearly 40% on Tuesday as markets digested the threat of a long-term closure of the Strait of Hormuz. Investors also appeared to react to a halt of output at a major liquified natural gas export facility in Qatar. The jump in prices could push up utility costs for households in Europe.

Unrest in the Strait of Hormuz risks higher prices and slower growth in economies across the globe, including the U.S., some analysts said.

"A $10 per barrel increase in oil, results in a 25 cent increase in a gallon of gas, $50 billion a year in additional spending per annum, $375 per household, and a reduction of 15 basis points in real GDP," Mark Zandi, chief economist at Moody’s Analytics, said.

"Any threat to vessel safety in the Strait of Hormuz immediately raises the risk of a system-wide energy shock," Draco added.

"Recent developments increase the likelihood of abrupt shipping delays, rerouting along longer passages, and sudden price spikes – all of which could dampen global growth if tensions persist," he said.