The Strait of Hormuz and the Fiscal Calculations No One Wants to Make
The Strait of Hormuz is roughly 33 miles wide at its narrowest point. Through that narrow passage flows roughly 20% of the world’s oil and liquefied natural gas supply. Since Iran effectively closed the strait in early March 2026, that chokepoint has become the central variable in fiscal budget calculations from Washington to Berlin to Tokyo. The fiscal math is brutal. For the United States, the OECD projects inflation of 4.2% in 2026, 1.2 percentage points above its pre-conflict forecast. Higher inflation means less real purchasing power, lower consumer spending, and eventually lower tax revenues. The federal government is simultaneously managing elevated defense commitments, energy support measures, and a debt load that limits room for further fiscal stimulus. A sustained $60 per barrel oil price increase above pre-conflict averages would, according to one calculation shared with Al Jazeera, put the U.S. “firmly in recession territory” in terms of GDP impact. For Europe, the fiscal pressures are arguably sharper. Bahrain needed a $5.4 billion UAE currency swap agreement just to stabilize its currency after the conflict disrupted its oil and aluminum exports. Germany faces a growth forecast of 0.6% for the year. More than 40 countries have been engaged in discussions about how to reopen the Hormuz straits, which tells you something about how broadly the fiscal damage has spread. Iran’s proposal this week to reopen talks about the strait, reported Monday by Axios, was enough to push oil futures modestly lower but markets remain skeptical that a durable settlement is close. Until it is, fiscal planners around the world are working with numbers that keep changing in the wrong direction.
