The More Significant Energy Lesson Hidden Behind Iran’s Control of the Strait of Hormuz

(SeaPRwire) –   Keeping up with the hour-by-hour, daily shifts in energy markets sparked by the Iran conflict has been challenging—let alone separating meaningful trends from the noise. Oil prices swing wildly based on President Trump’s latest Truth Social post. Iran’s announcement today that the Strait of Hormuz is open to commercial vessels lifted the stock market and sent oil prices plummeting. Still, the long-term trajectory remains unclear. 

Yet the answer might be right in front of us: long-term structural volatility. The world has woken up to a new baseline of instability in the Middle East that won’t fade as long as Iran’s current regime stays in power and the country can control or block the Strait of Hormuz. This instability is bound to fuel price volatility. 

Bob McNally, an energy analyst and founder of the Rapidan Energy Group, describes the closure of the Strait of Hormuz as the loss of a key foundation for modern energy markets. Without the Strait being reliably open, the entire system creaks and is prone to dramatic ups and downs. “A core assumption in energy until February 28—just a few days into the fighting—was that the U.S. would never let anyone restrict commercial flow through the Strait of Hormuz,” he told me. “This is unprecedented.”

Subscribe to Future Proof here

McNally, author of Crude Volatility, argues that throughout history, oil markets have relied on a stabilizer to keep price fluctuations from spiraling out of control. Between the 1930s and 1960s, the Texas Railroad Commission (which regulates the state’s oil industry) effectively set global oil prices by imposing production limits. More recently, OPEC took on this role as its 12 members collaborated to set production caps in their countries—thus controlling prices. This war has reminded us of what happens when there’s no stabilizer. 

Closing the Strait of Hormuz limits OPEC’s key members (like Saudi Arabia and the United Arab Emirates) from getting their oil to market. It also undermines OPEC’s ability to stabilize prices. In short, we all need to prepare for persistent price volatility baked into the energy system’s structure—likely for years to come—even as the Strait reopens. Iran has shown it can close the strait; the mere possibility of closure is enough to create volatility.  

So, what does the energy future look like if volatility is part of the equation? Many people, including myself, have spent the past month thinking about where energy prices might go and how those prices will affect other fuels and power sources. But even without a guarantee of sustained high prices, volatility alone shapes markets. It’s long been known that oil price volatility slows capital spending both broadly and at individual firms. Ben Bernanke, Federal Reserve chair from 2006 to 2014, made this case in a seminal 1983 paper: firms delay irreversible investments when uncertainty rises, as waiting has value. A 2019 study across 54 countries confirmed this effect at the company level. 

Of course, the context was different in past periods of volatility. Hydrocarbon alternatives were limited and speculative until advances over the last decade. Today, the prospect of sharp oil and gas price swings might convince investors there’s a market for clean energy free of such fluctuations. In my conversations over the past two weeks, I heard exactly that. Investors don’t know what’s coming next, but they’re confident alternative fuels and power sources have a path to market. 

Yet public markets don’t reflect this. Stocks have brushed off the chance of prolonged regional turmoil, counting on Trump to de-escalate hostilities. 

The ceasefire needs not just to hold but to become a durable solution. Otherwise, a wake-up call is coming soon. Cooking fuel is already unavailable in parts of Asia; jet fuel is running low in Europe; fuel prices are higher globally. Even though the U.S. has been somewhat insulated, it will start sending more hydrocarbon products to other markets, pushing up domestic costs. At this week’s spring meetings of the International Monetary Fund (IMF) and World Bank in Washington, the IMF warned of slowing growth and that “downside risks dominate” the economic outlook. “We’ve been in a bit of la la land,” McNally says. “Well, la la land ends this month.”

To get this story in your inbox, subscribe to TIME’s Future Proof newsletter here.