The Strait of Hormuz, oil and an economic lesson

The geopolitical situation in the Middle East eased after the United States, Israel and Iran agreed on a two-week ceasefire, but much had already happened. The conflict had escalated from a local crisis into a budding energy crisis. Shell CEO Wael Sawan warned in March that without a resolution to the Strait of Hormuz situation, Europe could face a fuel shortage. Larry Fink estimated that an oil price rise to $150 per barrel could push the global economy into recession. On the other hand, Fink also presented another scenario where the situation is resolved quickly and oil prices fall even below previous levels. We are now closer to the better scenario, but peace is still being negotiated and the geopolitical situation remains tense.

On the markets, the price of Brent crude rose from around $70 to over $110 in just a few weeks. Inflation accelerated to 2.5 percent in the Eurozone in March. Rising inflation concerns were also reflected in a sharp increase in interest rates. This was not just a price spike. It was a reminder of how central and at the same time vulnerable an energy source oil is for the global economy. In Finland, there have been calls to lower the biofuel blending obligation to reduce fuel pump prices, and electric car sales picked up in March as consumers seek to reduce their exposure to crude oil risks. As a result of the ceasefire, oil prices fell to below $100, which lowers fuel prices and curbs the need for administrative price reductions.

The Strait of Hormuz is one of the world's most critical logistical chokepoints. When it closes, the effects are not limited to the energy sector. They ripple through inflation, interest rates, risk assessments, industry, trade and ultimately economic growth. The crisis is therefore not just geopolitical. It makes visible a dependency that has been known but whose costs have been underestimated when tankers move normally.

Strait of Hormuz – the world's most critical bottleneck

About 21 million barrels of oil pass through the Strait of Hormuz daily. Europe, Asia and the Americas are all dependent on this single chokepoint.

Source: EIA (U.S. Energy Information Administration), World Transit Chokepoints.

Europe's vulnerability did not emerge now – it has accumulated over the years. In 2024, the European Union imported more than half of its energy from abroad. According to the think tank Ember, EU countries paid approximately €930 billion more for energy in 2021–2024 than previously. The total bill was €1.8 trillion. This is not just a large number but a continuous transfer of wealth out of the European economy. It represents investment potential that was spent on imported energy instead of strengthening domestic production or infrastructure. The Strait of Hormuz crisis made this dependency even more visible.

€1.8 trillion – what could it buy?

EU countries paid €1.8 trillion for energy in 2021–2024. Comparing it to other figures puts the scale in perspective.

Sources: Ember, Eurostat. The nuclear power comparison is based on Hinkley Point C's €10 billion unit cost.

Scenario 1: The crisis escalates and drags on

There are at least two possible paths, of which the first sees the crisis escalating again and dragging on, keeping crude oil prices high. Supply does not recover quickly, repairs to damaged energy infrastructure are delayed, geopolitical tension persists and a stubborn risk premium remains in energy prices.

In the short term, the consequences are familiar. Purchasing power weakens, costs rise and economic growth slows. Inflation proves more persistent than expected, which is also reflected in rising interest rates. Governments are again called upon to lower fuel pump prices and support those affected. Resolving geopolitical tensions causes international discord.

In the longer term, however, the impact is structural. High oil prices change the profitability of investments. Electrification accelerates, energy efficiency becomes a necessity, and companies seek to reduce their dependence on imported energy. Growth in oil demand slows and may decline sooner than predicted. Historically, such shocks have forced economies to adapt. Major shocks are painful but they also change behaviour more permanently. Energy produced domestically or by reliable partners gains momentum. Nuclear energy also gains traction in some countries. Commission President Ursula von der Leyen called the abandonment of nuclear power a strategic mistake at the Paris Nuclear Summit in March 2026.

Scenario 2: A quick resolution

In the second scenario, the crisis is resolved one way or another, oil supply recovers and prices fall significantly. Full production recovery, however, requires repairing damaged oil infrastructure. In this scenario, the economy gets relief, consumption recovers and global value chains remain intact longer. This is an attractive short-term outcome, but it carries risk. When energy becomes cheaper, incentives for change weaken. The economic advantage of electrification shrinks, energy efficiency investments are postponed and dependence on imported energy persists longer. The green transition does not stop but it slows down. And a slower transition means the next crisis hits an economy that is still exposed to the same risk.

What does the scenario mean for the economy?

Move the slider to see how key economic figures change as the crisis drags on or is resolved.

The common denominator

There are significant differences between these scenarios, but one thing unites them. Geopolitical risk has returned as a permanent part of energy markets, as the war in Ukraine already demonstrated with Russian energy. Excessive dependence on imported energy from geopolitically unstable regions is a strategic vulnerability. Rational actors now price supply chain risks in a way that cannot easily be reversed. This is visible in corporate behaviour. The efficiency-based model is gradually giving way. It is being replaced by diversification, preparedness and longer contracts. This is more expensive but also more resilient.

The green transition is often seen as climate policy. It is, but it is also more. The green transition helps solve the energy security problem. Fossil fuels are vulnerable to geopolitical disruptions. Electricity produced from domestic sources is less exposed to such risks. This does not mean the transition is free, but neither is the alternative cost-free. The current crisis shows that the existing system is also uncertain and expensive when it comes under stress.

“The question is no longer whether Europe can afford to carry out the energy transition. The question is whether it can afford not to.”

Frank Elderson, Member of the Executive Board of the ECB

Economies must adapt to a more uncertain world. The question is not which scenario materialises but how well the economy can withstand both. Oil prices may rise or fall. What changes is the perception of risk. Even if this crisis is resolved or becomes a frozen conflict, geopolitical uncertainty will persist.

The crisis is shifting the global economy away from maximum efficiency towards a model where security of supply, diversification and risk management guide decisions. Climate change continues, so the green transition is needed to mitigate it, even if in the short term there are forces criticising its necessity and costs. The green transition should certainly be pursued using market mechanisms without excessive ideology. The important lesson of the crisis is that the energy system is not just a question of ecology or efficiency. It is also a question of stability. How this is answered will substantially determine economic development over the next decade.

Questions to consider – we're happy to help you explore them

• 1

  How well does your organisation's strategy account for the opportunities of a market-driven green transition in both the short and long term? Have you mapped out ways to increase energy efficiency and reduce exposure to energy price volatility?

• 2

  How confident are you in your organisation's ability to prepare for changes in the operating environment under different scenarios, and how could you better prepare?

• 3

  Has the crisis revealed issues in your business environment that you would like the current or future government to address?