The closure of the Strait of Hormuz during the recent U.S.-Israeli conflict with Iran has sent shockwaves through global energy markets, driving American inflation to its highest level in nearly two years and prompting urgent calls for a durable international framework to protect the world's most critical shipping lane. A U.S.-brokered ceasefire and Iran's agreement to reopen the strait to commercial traffic have offered some relief, but analysts warn that the economic damage will take time to unwind.

U.S. consumer prices rose 3.3 percent in the twelve months through March, up sharply from 2.4 percent in February, according to the Department of Labor — the largest monthly change since 2022, when Russia's invasion of Ukraine triggered a comparable energy shock. Gasoline prices surged 21.2 percent between February and March alone, the steepest single-month jump since the government began tracking the data in 1967, while fuel oil prices leapt more than 30 percent. Together, higher energy costs accounted for roughly three-quarters of the overall inflation increase during the period. In states like California, where average pump prices reached nearly $5.93 per gallon against a national average of $4.16, the squeeze on household budgets has been especially acute. Ordinary Americans described filling tanks for $140 instead of the usual $80, and cutting back on driving wherever possible.

Beyond fuel, the ripple effects are spreading. Airline tickets and clothing costs have risen as companies pass on higher energy and shipping expenses to consumers. Food prices held steady in March, but analysts caution they may climb in coming months as elevated transport and fertiliser costs feed through the supply chain. Consumer confidence, as measured by the University of Michigan index, fell to a record low this month. Oil prices remain roughly 30 percent above pre-conflict levels despite retreating from recent peaks, and hopes on Wall Street for Federal Reserve interest rate cuts this year have largely faded. Fed officials, stung by their post-pandemic misjudgement in calling that inflation transitory, are expected to proceed cautiously before signalling any relief. Core inflation — which strips out volatile food and energy prices — rose a more modest 2.6 percent, offering some grounds for cautious optimism that the underlying trend has not fundamentally shifted.

The episode has thrown into sharp relief how much the global economy depends on the Strait of Hormuz, through which roughly half the world's seaborne crude oil passes, alongside natural gas, fertilisers, aluminium and helium. Under international law, including the UN Convention on the Law of the Sea and IMO regulations, all ships enjoy the right of transit passage through the strait and that right cannot be impeded. Crucially, the mandatory traffic separation lanes within the strait run through waters governed by Oman — not Iran — meaning Tehran has no legal jurisdiction over those shipping lanes, and any attempt to impose levies or restrict passage would be incompatible with both treaty law and customary international law.

With the immediate crisis easing, the focus is shifting to longer-term solutions. Legal experts and regional analysts argue that a formal multilateral agreement — anchored in existing international law and overseen by bodies such as the UN and the IMO — is essential to prevent future disruptions. Both Iran and its Gulf Arab neighbours depend on the strait to reach export markets and import essential goods, giving all parties a strong shared interest in its stability. The potential economic and diplomatic gains from a durable agreement far outweigh any leverage that comes from threatening one of the arteries of global trade.