The initial assumption may have been that pressure on Iran would remain confined to a limited, controlled, and manageable framework. But the vortex of the Strait of Hormuz has shown that in today’s deeply interconnected economy, war does not flow only where the missiles land. Part of the bill is now showing up in diesel prices, gas contracts, shipping insurance, the Treasury bond market, the Federal Reserve’s interest rate, and the cost of financing America’s $40 trillion debt.
For this reason, the biggest error in analyzing recent developments is to measure the severity of the crisis by the daily price of oil. Whether Brent crude sits at $95 or crosses $100 is only the first layer of the issue; the more important transformation is happening beneath the market’s skin. The Hormuz shock has moved beyond crude oil, reaching refined products and gas, raising the cost of transport and production, and from there entering inflation and the “price of money” in the United States. The crude oil market still has tools to absorb the shock — increased exports from Iraq, rerouted shipments, capacity from other suppliers, and demand adjustments can offset part of the shortfall, which explains why the sharp drop in traffic through Hormuz has not necessarily translated into an equivalent explosion in Brent prices.
But this relative calm can be misleading, because the real point of transmission for the crisis is now less crude oil itself and more products like diesel and jet fuel. The rise of the average U.S. diesel price to $5.820 per gallon, an increase of roughly 55 percent since the start of the conflict, and the surge in diesel refining margins to more than $108 per barrel show that the issue has moved beyond a mere “shortage of oil barrels.” Diesel directly fuels trucking, mining, agriculture, machinery, the cold chain, construction, and industrial production; therefore, its rise transmits to production costs and consumer prices faster than crude oil does. Trump may have counted, when deciding to attack, on America’s position as the world’s largest oil producer — but the strategic folly lies precisely in overlooking the difference between “having oil” and “being immune to an energy shock.”