Dallas Fed: Long-term closure of the Strait of Hormuz could push oil prices to $167, with inflation exceeding 4%

LootboxPhobia · 2026-04-07T17:55:15+00:00

Research from the Dallas Federal Reserve Bank indicates that if the Strait of Hormuz is closed due to Iran conflict, U.S. inflation could surpass 4% before the end of the year. Closing for one quarter could raise inflation by 0.35 percentage points, while a three-quarter closure could increase it by up to 1.8 percentage points. The impact on core inflation is limited, and long-term inflation expectations are not expected to spiral out of control.

LootboxPhobia

2026-04-07 17:55:15

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Investing.com - A research report published Tuesday by the Federal Reserve Bank of Dallas shows that, due to a long-term closure of the Strait of Hormuz caused by the Iran war, U.S. headline inflation could rise above 4% by the end of the year.

The working paper looked at several scenarios for the strait, which carries 20% of global oil trade and has already been effectively closed for five weeks. If it is closed for a quarter, it could raise the annualized inflation rate for March by 5.2 percentage points, even though the impact would fade quickly, but it would still lift Q4 inflation by 0.35 percentage points.

Researchers found that if it is closed for three quarters, it would push oil prices from the current $115 per barrel to $167 and raise Q4 inflation by up to 1.8 percentage points.

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The year-over-year inflation rate measured by the Personal Consumption Expenditures Price Index for January was 2.8%. The Fed’s target is 2%.

Excluding food and energy prices, core inflation would rise by 0.18 percentage points if the closure lasts one quarter; if it lasts three quarters, it would rise by about 0.49 percentage points. Core inflation for January was 3.1%.

The research found only a limited impact on inflation expectations. One-year expectations could increase by up to 0.8 percentage points, while 5- to 10-year expectations would increase by up to 0.09 percentage points.

Dallas Fed researchers wrote: “There is almost no evidence that higher gasoline prices feed into core inflation or cause long-term inflation expectations to run out of control.”

As these findings were released, the Middle East conflict appeared to be on the brink of escalating on Tuesday, with President Donald Trump calling on Iran to open the Strait of Hormuz, or else it would destroy its power plants and bridges.

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