War in the Persian Gulf and the closure of the Strait of Hormuz present terrifying prospects. However, unlike the 1970s, this crisis will not lead to the dreadful stagflation of that era.
Why is this time different from the 1970s?
In the 1970s, the OPEC oil embargo and the resulting shortages created a sense of permanent oil scarcity. Phrases like “peak oil” were common. These expectations exerted further upward pressure on inflation rates, making economic recovery difficult.
Today, however, conditions are completely different:
- Remarkable efficiency in fuel consumption;
- New drilling technologies;
- The growing presence of energy alternatives.
North Americans perceive an abundance of oil and gas, with Arabian Peninsula producers capable of bypassing the Strait of Hormuz, thus mitigating scarcity concerns. Unlike the 1970s, where central banks exacerbated inflation with easy monetary policies during oil shortages, today’s Federal Reserve and other central banks appear to have learned from these past errors.
Best Case Scenario: Early End to Hostilities
A rapid end to the conflict; Negotiation with a cooperative or at least less hostile government in Iran (resulting from a successful popular uprising or disillusioned survivors of the existing regime); Immediate reopening of the Strait of Hormuz to all shipping; Serious efforts to repair damage to oil and gas fields and shipping infrastructure.
Worst Case Scenario: Escalation and Widespread Devastation
Prolonged continuation of the conflict; Complete destruction of the region’s oil and gas fields and shipping infrastructure; The world indefinitely loses access to all the oil and gas that once passed through the Persian Gulf; Fossil fuel prices will go much higher than today; Economies will have no reason to hope for price reductions in the foreseeable future.
Probabilities
Betting markets estimate an almost 80% chance of the war ending by the end of June. In this case, probabilities lean towards the optimistic scenario.
Bonyad-e Tosse’e Farda (BTF) Institute, quoting National Interest (April 1, 2026).
You can also read more about new strategies related to Strait of Hormuz and new regime for transit through it.
