Oil Surges Past $118 as the Strait of Hormuz Crisis Becomes the Biggest Supply Disruption in History
Brent crude climbed to $118.33 per barrel on April 29, extending a rally that has now pushed oil prices up more than 55% since the Iran conflict began. The International Energy Agency has called it “the largest supply disruption in the history of the global oil market.”
The Numbers
| Metric | Current | Pre-Conflict | Change |
|---|---|---|---|
| Brent Crude | $118.33/bbl | ~$76/bbl | +55%+ |
| Strait of Hormuz Flow | 3.8 mb/d | 20+ mb/d | -81% |
| US Gas (National Avg) | $4.10/gal | $3.23/gal | +27% |
| Jet Fuel | — | — | +95% |
The Strait of Hormuz, which normally handles roughly 20% of the world’s oil supply, has seen shipments collapse to 3.8 million barrels per day — down from over 20 million before the conflict escalated. Insurance costs for tankers transiting the strait have skyrocketed, and several major shipping companies have rerouted around the Cape of Good Hope.
Why This Matters Beyond the Gas Pump
Inflation is back on the table. The March CPI showed energy prices jumping 10.9% month-over-month, the largest single-month increase since the 2022 spike. Core inflation, which excludes food and energy, has been more contained — but there are signs that higher energy costs are starting to bleed into transportation, manufacturing, and food production.
The Fed is boxed in. The Federal Reserve held rates steady at 3.50%–3.75% at its April 29 meeting — Powell’s final FOMC decision before handing the chair to Kevin Warsh. Oil-driven inflation makes it harder to justify rate cuts even as economic growth slows. Most economists now expect only one cut this year, likely in September or December.
Consumer spending faces a squeeze. With gas at $4.10 per gallon, the average American household is spending roughly $200 more per month on fuel compared to six months ago. That’s money not being spent at restaurants, retailers, or on discretionary purchases — a headwind for the consumer-driven U.S. economy.
How Did We Get Here?
The Iran conflict escalated in stages:
- Initial strikes disrupted Iranian oil exports (roughly 1.5 mb/d)
- Retaliatory actions near the Strait of Hormuz raised insurance premiums and slowed transits
- Full disruption arrived when the strait’s daily flow dropped below 4 mb/d, cutting off Iraqi, Kuwaiti, and UAE exports that transit through the waterway
- Rerouting costs have added 10-15 days to delivery times for Asian-bound crude, tightening the global supply chain further
The Strategic Petroleum Reserve releases and OPEC+ spare capacity have offset some of the loss, but the gap remains substantial. Saudi Arabia has increased production, but its spare capacity is limited — and much of it also depends on safe passage through the strait.
Impact on Corporate Earnings
The oil spike is already showing up in Q1 2026 earnings season:
- Airlines are warning of margin compression from jet fuel costs (+95%)
- Consumer staples companies are flagging higher transportation and packaging costs
- Automakers report increased interest in EVs but supply chain constraints limit production
- Energy companies are the clear winners, with major oil producers reporting record or near-record profits
What to Watch
- Diplomatic developments — Any ceasefire or de-escalation could send oil prices down 15-20% rapidly
- SPR releases — The Biden administration is considering additional strategic reserve releases
- OPEC+ response — The next OPEC+ meeting could bring production increases, but members are wary of depleting spare capacity
- Demand destruction — At what price level do consumers and businesses meaningfully cut consumption?