Trump bets Hormuz blockade will break Iran before triggering a global crisis

President Trump has reportedly told his aides to prepare for a prolonged US blockade of the Strait of Hormuz, the world’s most critical waterway for global energy flows. On Wednesday, the president told Axios he is maintaining the blockade until Iran agrees to a deal over its nuclear program.

The pressure campaign carries mounting costs beyond Iran. While the near-total cessation of flows through the key waterway is cutting off hundreds of millions of dollars in revenue for Tehran, it’s also choking key corners of the global market.

By extending the blockade, Trump is wagering that Iran’s export-dependent economy will buckle before higher fuel prices, supply shortages, and renewed inflation inflict unacceptable damage on US consumers and allies abroad.

“‘Economic war’ has become the US’s main strategy for getting Iran to make principal concessions to the US,” Macquarie Bank strategist Thierry Wizman said.

Futures on Brent crude (BZ=F), the international benchmark, reached their highest prices since June 2022 on Wednesday, climbing as much as 7.8% to reach $120.22 per barrel. Those on US benchmark WTI crude (CL=F) climbed 8% as well to cross $108.

On a typical day before the war, between 125 and 140 vessels on average would move roughly 20 million barrels per day (b/d) of crude oil and other petroleum products through the strait. Since the war began, satellite and ship-tracking data shows that those figures have fallen to just a trickle, with daily crossings numbered within or close to single digits.

The US naval blockade has in particular targeted Iranian vessels that had continued to move oil through the strait during the war, estimated at around 1.5 million b/d before the US began blocking shipments. Six Iranian tankers laden with oil have been forced by the US to turn back and reenter the Persian Gulf in recent days, instead of making their way to global buyers, according to data from TankerTrackers.com.

For Iran, where oil and gas exports account for roughly 80% of the country’s export revenue, per JPMorgan, the economic effects are acute. President Trump has claimed in social media posts that Iran is losing roughly $500 million per day and that the regime has told the White House the country is in a “state of collapse.”

Iran likely has less than a month before it will need to begin shutting down oil wells as its storage sites reach capacity, according to maritime intelligence provider Kpler, risking damage to already brittle infrastructure.

Trump has insisted he’ll maintain the blockade until Iran agrees to a deal over its nuclear program, which has been a key red line for the White House and its leading justification for starting the war alongside Israel in late February.

“The blockade is somewhat more effective than the bombing,” President Trump said in comments to Axios on Wednesday. “They are choking like a stuffed pig, and it is going to be worse for them.”

Yet at the same time, the global economy is reeling from the loss of millions of barrels per day of oil supplies, putting markets on the “path to a major supply cliff,” Capital.com analyst Kyle Rodda said.

The market lost roughly 13.7 million b/d of oil supplies in April, or nearly 15% of the world’s 100 million b/d demand rate, according to estimates from JPMorgan Chase.

Much of the world’s spare production capacity that could be used to backfill those losses is within the Gulf countries, whose exports are trapped behind the Strait of Hormuz, and global visible oil inventories are likely to soon hit all-time lows, according to Goldman Sachs research.

In import-dependent Asia, the primary market for oil passing through the Strait of Hormuz, governments have implemented export bans and shortened school and work weeks to curb demand amid skyrocketing prices. In Europe, natural gas prices have soared in a market already vulnerable after the start of the 2022 Russian invasion of Ukraine, mounting jet fuel shortages have forced airlines to cancel flights, and refineries have cut production runs.

On the domestic front for the Trump administration, US gasoline prices at the pump rose to their highest level since July 2022 on Wednesday, reaching a national average of $4.30 per gallon at a time when Americans are already dealing with the economic pain of sticky inflation and steadily rising prices. Freight prices are increasing as diesel costs soar alongside gasoline, putting upward pressure on a range of consumer goods.

“We are talking about roughly 900 million barrels [of oil] that haven’t been produced in the last couple of months and that’s been replaced essentially by stock drawdown,” Wael Sawan, CEO of global oil and gas giant Shell, said in an interview with Bloomberg TV.

“We’re now starting to reach some relatively low levels,” he said. “We’re talking about demand curtailment in certain areas. We’re talking about fuel switching.”

Iran may not be as responsive to economic pressure as the White House is hoping, JPMorgan strategists said. The regime has more than 140 million barrels of oil on the water outside of the US naval blockade, and the country’s reliance on gasoline imports is far lower now than it was in 2018 when the US Treasury initially sanctioned Iranian oil sales, the bank noted.

Iran could also use its network of regional proxy allies to threaten vital remaining transport lines utilized by other Gulf countries, putting more pressure on the US to reopen the Strait of Hormuz.

Yet even with those risks, the Trump administration has doubled down on its blockade, trading global economic pain for strategic leverage over Tehran in what Treasury Secretary Scott Bessent called a “maximum pressure campaign.”

“In the past three weeks, the shift from a kinetic war to an economic war has been associated with a perceived improvement in global economic prospects,” Macquarie’s Wizman said. “But this attitude on the part of traders may not reflect how bad things may get if the economic war endures.”

Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at [email protected].