By Uday Jagat
For most of the world, the Strait of Hormuz is little more than a narrow line on a map. For businesses, it has become a line on the cost sheet. Nearly six months after the war between America and Iran began, the waterway remains badly disrupted. Before the fighting began, Hormuz carried roughly a fifth of the world’s petroleum liquids and liquefied natural gas. Oil flows through the strait averaged 21.6m barrels a day in the final quarter of 2025. By the second quarter of this year, they had fallen to just 4.9m barrels a day. A June agreement between America and Iran was meant to offer a path towards reopening the route, but disagreements over sanctions and control of the strait quickly stalled progress. What first looked like a temporary supply shock is increasingly becoming something businesses have to plan around.
Oil markets have adjusted, although hardly comfortably. Brent crude was trading at around $91 a barrel on August 18th, well below the highs reached earlier in the conflict but still high enough to raise costs across the economy. More important than the headline price is the uncertainty now built into it. Firms can often adapt to expensive energy if they know roughly what it will cost. It is much harder to plan when both price and supply can change sharply with each setback in the conflict. The first effect of the crisis was simple enough: less oil and gas moved through the Gulf, so prices rose. The second has been slower and more damaging. Higher energy costs have spread into freight, insurance, electricity, chemicals and countless other goods, while shipping delays have made supply chains less reliable. By April, companies ranging from paintmakers to airlines were already warning of rising transport and input costs.
This is why energy shocks rarely remain confined to energy. A manufacturer faces higher electricity and plastics costs, while a hotel pays more to cool rooms and wash linen. Bakeries spend more on heating ovens and delivering bread, and airlines face larger fuel bills while dealing with disrupted routes. Even businesses that use little oil directly are paying for Hormuz through the goods and services they buy. The impact is therefore better understood not as a single jump in the oil price, but as a gradual rise in the cost of doing business almost everywhere. That cost is already visible in company accounts. By May, Reuters estimated that businesses around the world had disclosed at least $25bn of costs linked to the war. Companies have responded by raising prices, cutting spending and delaying investment, but these measures become harder when demand is weak. Firms are paying more for what they buy without always having the freedom to charge more for what they sell.
The UK offers a useful example of that squeeze. Input-price growth reached 4.1% in the three months to June, its fastest pace since 2024, and 35% of firms surveyed cited energy prices as a concern. At the same time, many companies said weak demand was preventing them from passing the full increase on to customers. They are left with an unpleasant choice: raise prices and risk losing sales, or absorb the cost and accept lower margins. Consumers face much the same pressure. In Britain, Ofgem raised the energy price cap by 13% from July. When households spend more on electricity, heating and petrol, they have less left for restaurants, shops and entertainment. Some firms are therefore seeing costs rise just as their customers become more cautious.
The inflationary effect stretches well beyond fuel. Higher gas prices make fertiliser more expensive, which can eventually push up food costs. Dearer diesel raises the cost of road transport, and those costs then filter into factory prices and shop shelves. A sudden spike in oil may fade quickly, but an increase that works its way into supplier contracts and wages can last much longer. The OECD estimates that, in one prolonged energy-shock scenario, global inflation would be around 0.4 percentage points higher in 2026. That leaves central banks with an awkward problem. They cannot produce more oil or make Hormuz safer, but they still have to respond if higher energy costs begin feeding into broader inflation.
For businesses, this creates a second strain through interest rates. The Bank of England kept its policy rate at 3.75% in July, while three members of its Monetary Policy Committee voted for an increase. Its forecasts suggest that higher energy prices alone could add around 0.4 percentage points to British inflation in the second half of 2026. If inflation proves persistent, borrowing costs may have to remain restrictive for longer. The same crisis can therefore hit a company twice: first through its energy bill and then through the cost of financing.
The most important change since March is not what has happened to crude prices on any particular day. It is that firms are starting to treat an unreliable Hormuz as a lasting business risk. Supply chains have been redirected, emergency stocks released and fuel costs hedged. The Energy Information Administration assumes that flows through the strait will remain severely restricted through August and warns that trade patterns may not broadly return to pre-conflict conditions until early 2027. The deeper danger is that what began as a geopolitical shock becomes an ordinary business expense. Higher freight charges may be written into longer-term contracts, workers facing higher living costs may demand higher wages and investment may be postponed when financing is expensive and future costs are harder to predict.
For businesses, that is the uncomfortable lesson of the past few months. The danger is no longer simply another dramatic spike in oil prices. It is that expensive and unreliable energy becomes part of the normal operating environment. A crisis that companies once hoped would last a few weeks is beginning to influence how they plan for the next few years.
The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.
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