Wall Street Warns Iran Conflict Will Cause Prolonged Energy Crisis

Two weeks into Operation Epic Fury — the joint U.S.-Israeli military campaign against Iran — Wall Street's biggest banks have abandoned their prewar consensus that oil would trade in the $50s and $60s this year. In its place is a starkly different forecast: the effective closure of the Strait of Hormuz has triggered the largest oil supply disruption in history, and the crisis may have months, not weeks, left to run.

As Crowdbyte has reported, oil prices have already surged from under $70 per barrel to above $100 since the strikes began on February 28, while Iran's new Supreme Leader Mojtaba Khamenei has vowed to keep the strait closed as a "tool to pressure the enemy." Now the question confronting global markets, policymakers, and consumers is no longer whether the energy shock will be severe — it already is — but how deep and how long the damage will last.

The Largest Supply Shock on Record

The numbers underpinning Wall Street's alarm are staggering. Goldman Sachs analysts estimate that daily oil flow through the Strait of Hormuz has collapsed from more than 19 million barrels under normal conditions to roughly 600,000 — a decline of more than 96% [2]. The chokepoint, which normally handles about 20% of the world's crude supply, has been effectively sealed by a combination of Iranian naval mines, drone attacks on commercial vessels, and the sheer risk of transiting a war zone.

JPMorgan Chase head of commodities research Natasha Kaneva wrote in a March 13 note that by the end of the following week, "crude supply cuts are expected to approach 12 million barrels per day, making the deficit highly visible across physical markets" [1]. Goldman now assumes 21 days of severely restricted Hormuz flows at just 10% of normal, followed by a 30-day gradual recovery — far worse than its initial estimate of a 10-day disruption [3].

Source: FRED / U.S. Energy Information Administration

Data as of Mar 11, 2026CSV

The scale of the disruption dwarfs every previous oil shock. The 1973 OPEC embargo removed roughly 4.4 million barrels per day from global markets. The 1990 Iraqi invasion of Kuwait took out about 4.3 million. Even Russia's 2022 war in Ukraine, which sent Brent crude briefly to $128, disrupted far less physical supply than the current Hormuz closure [2].

Wall Street Reverses Course

The reversal in Wall Street forecasting has been whiplash-inducing. As recently as January, the consensus among major banks was firmly bearish on oil. Goldman Sachs had Brent at $66 for year-end. Citigroup forecast $60. JPMorgan called for $60. Morgan Stanley pegged it in the low-to-mid $50s [11]. The Trump administration's "drill, baby, drill" energy doctrine and expectations of a global supply glut had made cheap oil a consensus trade.

That consensus has been obliterated. Goldman has raised its near-term forecast to $98 for Brent in March and April, while maintaining a $71 year-end target that assumes a diplomatic resolution [3]. But RBC Capital Markets' Helima Croft, one of Wall Street's most influential energy strategists, has warned that the conflict could "prolong well into spring," pushing prices above the $128-per-barrel high set after Russia's invasion of Ukraine and potentially challenging the all-time record of $147 reached in 2008 [4].

Morgan Stanley strategists have cautioned that a prolonged conflict will drive "higher energy prices, hotter inflation, and greater market uncertainty" [11]. The bank's economists see significant stagflationary risk — the toxic combination of stagnant growth and accelerating prices that last plagued the U.S. economy in the 1970s.

The Emergency Response — and Its Limits

The International Energy Agency has responded with the largest coordinated drawdown of strategic petroleum reserves in its 52-year history, authorizing the release of 400 million barrels across its 32 member countries. The United States alone committed 172 million barrels from the Strategic Petroleum Reserve [6].

But the sheer arithmetic of the crisis exposes the limits of emergency reserves as a shock absorber. The U.S. release of roughly 1.4 million barrels per day covers only about 15% of the supply lost from the Hormuz closure [6]. At current drawdown rates, the IEA's collective reserves — which total roughly 4.1 billion barrels — would be exhausted within months if the strait remains shut.

Markets have already delivered their verdict on the adequacy of the response. On the day the IEA announced its record release, Brent crude rose 9.2% to settle at $100.46 — the first close above $100 since August 2022 [6]. Analysts described it as the market pricing in the reality that strategic reserves are a bridge, not a solution.

The Stagflation Specter

The macro-economic modeling paints a grim picture if the crisis persists. Oxford Economics has mapped two scenarios: if Brent crude averages around $100 per barrel for two months, the impact would shave "a few tenths of a percentage point off global GDP growth" through higher inflation, but outright recessions would be avoided. But if prices reach $140 and stay there for eight weeks — an increasingly plausible scenario — the eurozone, the United Kingdom, and Japan would all tip into contraction, while the U.S. economy would edge toward "a temporary standstill" with rising layoffs [5].

Deutsche Bank economists have warned that without "concrete evidence of de-escalation," elevated oil prices are "raising the risk of a broader stagflationary shock" [5]. Goldman Sachs has raised its recession probability for 2026 by 5 percentage points to 25% [10].

Source: FRED / S&P Dow Jones Indices

Data as of Mar 14, 2026CSV

The Federal Reserve faces what multiple analysts have described as its most difficult policy crossroads since the Volcker era. As Crowdbyte reported previously, most economists had been forecasting a rate cut in June, but the energy shock has thrown that timeline into disarray. The central bank is caught between a softening labor market that argues for easing and an energy-driven inflation shock that argues for patience — a dilemma with no good answers.

Pain at the Pump — and Beyond

American consumers are already feeling the shock. The national average gasoline price hit $3.54 per gallon in the week ending March 9, according to AAA data — a 21% increase in one month and the highest level since mid-2024 [7]. Gas prices saw their largest three-day jump since Hurricane Katrina in 2005, according to Bespoke Investment Group. By March 12, the average had climbed to nearly $3.60 [7].

Source: FRED / U.S. Energy Information Administration

Data as of Mar 12, 2026CSV

But gasoline is only the most visible cost. The Center for American Progress has warned that the fuel price surge will cascade through the entire economy: shipping costs rise, which pushes up prices for groceries, consumer goods, and raw materials. Households face higher heating and electricity bills. And the burden falls disproportionately on lower-income Americans, who spend a larger share of their income on essentials [13].

Airlines have been among the hardest hit. Jet fuel prices have surged by up to 58%, threatening to add $24 billion in costs for U.S. carriers alone and forcing ticket price increases of at least 11%, as Crowdbyte has previously reported. The airline industry's most optimistic profit forecasts for 2026 have been effectively wiped out.

A Global Crisis Radiating Outward

The damage extends far beyond American gas stations. Across Asia, governments are scrambling to manage the fallout. India, the world's third-largest oil importer, has quietly instructed public-sector refiners to prioritize the domestic market over exports, while bracing for a potentially more severe LNG shortage that threatens industrial output [9]. The Philippines has ordered government offices to adopt a four-day workweek to save fuel, as Crowdbyte reported.

The most vulnerable nations are already in crisis mode. Bangladesh and Sri Lanka, with strategic reserves of 30 days or less, have imposed emergency fuel rationing. Pakistan has raised petrol and diesel prices by a massive 55 rupees per liter. Sri Lanka has prioritized fuel for essential services amid panic buying [9]. Ethiopia faces severe price shocks given its reliance on refined petroleum imports from Gulf states.

The disruption extends beyond crude oil. Roughly one-third of global fertilizer trade transits the Strait of Hormuz, as do about 85% of Middle Eastern polyethylene exports — a critical input for packaging, automotive components, and consumer goods [10]. A prolonged closure threatens to trigger cascading supply-chain failures across industries with no direct connection to energy.

Markets in Turmoil

Equity markets are reeling. The S&P 500 has fallen to a new 2026 low, posting three consecutive losing weeks and shedding roughly 5% from its recent high [12]. The Dow plummeted 600 points in a single session after Iran rejected a ceasefire proposal and confirmed it had mined sections of the strait.

Energy stocks have been the lone beneficiaries. Exxon Mobil, Chevron, and ConocoPhillips have surged between 3% and 5% as investors price in a windfall from elevated crude prices [12]. But the broader market tells a different story: fears of 1970s-style stagflation, combined with the Trump administration's tariff-related price pressures and AI-driven electricity demand, have created what one strategist called "a three-headed inflation monster."

The Road Ahead

The critical variable is duration. If diplomatic channels produce a ceasefire and the strait reopens within weeks, Goldman Sachs and other banks expect oil to retreat toward the $70 range by year-end [3]. The prewar fundamentals — a global supply surplus, robust U.S. shale production, slowing Chinese demand — would reassert themselves.

But every day the strait remains closed, that optimistic scenario fades. Mine-clearing operations alone could take weeks even after hostilities cease. Damaged port infrastructure along the Persian Gulf coast may take longer still to restore. Insurance premiums for tanker transits have soared to wartime levels, and shipowners may be reluctant to re-enter the waterway even after military operations wind down.

RBC's Croft has framed the dilemma bluntly: the combination of expanded U.S. war aims and Iranian asymmetric capabilities makes a near-term resolution unlikely [4]. If the conflict drags into spring, as she and other analysts increasingly expect, the world will be staring at an energy crisis not seen since the Arab oil embargo of 1973 — only this time, global supply chains are more interconnected, economies are more energy-intensive, and the tools available to cushion the blow are more limited than policymakers would like to admit.