Professor warns: This could happen to the economy if the Strait of Hormuz remains closed
Even if peace were to come now, the effects of the war would not disappear overnight. And if the Strait of Hormuz remains closed? “Then we're talking about a completely different scenario,” says the expert.
Trump spoke about the war in Iran on 1 April 2026.(Photo: Alex Brandon / AP Photos / NTB)
Iran continues to keep the Strait of Hormuz closed, a route through which one fifth of the world’s oil supply normally passes. At the same time, the United States is preventing ships from traveling to and from Iranian ports.
The ongoing conflict has rapidly driven up the price of fossil fuels. People around the world are beginning to feel it in their wallets, according to CNN.
On 6 May, reports emerged that the United States and Iran were approaching an agreement to end the war.
According to Norwegian newspaper VG, the agreement includes points such as Iran pausing uranium enrichment, the United States lifting sanctions and releasing frozen Iranian assets. Both sides would also lift the blockade of ship traffic through the Strait of Hormuz.
Ole Gunnar Austvik is professor emeritus of political economy and petroleum economics at the University of Inland Norway. He says we can hope, but not be certain, that a solution is now coming.
Annonse
"No one really knows what's going to happen based on these kinds of messages, because we have heard so many of them already," he says.
Depends on a credible and lasting agreement
Oil prices fell after news of a possible peace agreement surfaced on 6 May.
"But I don't think there will be any major change until the market believes something more concrete and reliable is in place," says Austvik.
Roger Hammersland is an economist working with macroeconomics at Statistics Norway. He is also not convinced that a solution is imminent.
"It's possible that the market is placing a bit too much weight on signals coming from America and Israel. As I understand it, the rumours about this agreement stem from an article in Axios. People should be somewhat cautious about accepting it at face value; Iran also has a hand in the game," he says.
If a peace agreement is successfully reached and the Strait of Hormuz reopens, would that quickly stabilise the global economy, or would the effects linger?
"If this agreement actually materialises, then naturally it would have an impact, and oil prices would likely fall fairly quickly," he says.
This depends on there being a credible and lasting ceasefire, says Hammersland. But he does not believe that the effects of the war will disappear overnight.
"A lot of infrastructure has already been destroyed, and rebuilding takes time," says Hammersland.
In addition, any drop in prices could quickly reverse if confidence in the agreement weakens.
Does not expect prices to fully return to previous levels
Austvik says it could take time before supply returns to normal, even if an agreement comes into force.
"Some things are damaged, and some things need to be restarted. It would calm the situation, but there would almost certainly still be uncertainty about whether this will go well," he says.
Annonse
He adds that it's not impossible Iran could want to prolong tensions in order to influence the congressional elections in the United States this autumn.
Even if the strait reopens, Austvik believes oil prices will likely remain higher than they were before the war for the rest of the year.
"On top of that, a level of uncertainty has now been created that could persist for years. It's not guaranteed that prices will return to 60–70 dollars per barrel within the next few years," he says.
Spreading to other goods
If the conflict continues and oil prices remains high, will people start to feel it financially?
It's already being felt, says Austvik, though he stresses that it's not yet a crisis. If current prices persist, the poorest groups – both domestically and globally – will be hit the hardest, he says.
The direct effect of the Strait of Hormuz being closed is that less oil, gas, and fertiliser reach the market, which increases prices globally, says Austvik.
"The indirect effects are that this feeds into the production of all sorts of things," he says.
In Norway, the closure of the strait will contribute to higher imported inflation, particularly through fuel prices, shipping costs, and certain input factors used in the production of goods, explains Roger Hammersland.
Food prices may also rise because fertiliser becomes more expensive, especially for imported food products. Electricity prices could also increase significantly through higher gas prices in Europe. This could affect consumer prices.
"At the same time, Norway is an energy producer, so we benefit from improved terms of trade if oil prices rises. There are therefore two effects, one that is positive for Norway and one that is negative," he says.
Interest rates rise
On 7 May, Norges Bank raised interest rates by 0.25 percentage points.
"This decision was not made because of what's happening in the Strait of Hormuz, but over time these effects will spread and could create inflationary pressure," says Hammersland.
In March, Statistics Norway's forecast for policy rates in the euro area already suggested up to two interest rate increases within a year, partly because of what had happened in the Middle East.
"A lot has happened since then. Oil prices have increased further, and expectations that they will remain high have also grown. I believe the expected oil price path underlying our forecasts could be raised quite significantly in our upcoming international projections if no agreement is reached," he says.
Statistics Norway will release updated forecasts for the Norwegian and international economy on 15 June.
Could have major consequences
What happens if the conflict between Iran and the US is not resolved and the Strait of Hormuz remains closed for many weeks or months ahead?
"Then we're talking about a completely different scenario," says Hammersland.
Around 20 per cent of the world’s oil passes through the strait, along with a significant share of liquefied natural gas (LNG) and fertiliser shipments.
"That could have major consequences. We could actually see physical shortages of oil and gas. In that kind of situation, oil and gas prices could surge dramatically,"he says
Oil prices are currently around 100 dollars per barrel. If no agreement is reached and hostilities are renewed, oil prices could jump to 200 dollars, says Hammersland.
"Then we would see even higher energy prices, much stronger inflationary pressure, and most likely further interest-rate hikes," he says.
The worst-case scenario
Would the economy fall into crisis and recession if the Strait of Hormuz remains closed for several more weeks?
"That depends on how he closure happens," says Ole Gunnar Austvik. "If it's a purely politically imposed closure, as it is now, then it's something that can eventually be reopened, although restarting operations takes time. The real crisis scenario is if they bomb each other to pieces."
In other words, if oil facilities and shipping infrastructure are destroyed. That would remove a significant share of global oil production capacity for years.
"If things spiral completely out of control, which they could, then you get the major crisis," he says.
One concern is that such a war could spread to the Bab el-Mandeb Strait, the entrance to the Red Sea. At the other end lies the Suez Canal, which is extremely important for global trade. As a result, trade in goods could also be affected.
"But can the world cope with a few more weeks of a politically closed Strait of Hormuz?"
"It gradually becomes worse. Some countries in Asia are already beginning to experience problems. The crucial difference is whether there is physical destruction," he says.
