1. Executive Summary

This report frames the economic impact of a sustained closure of the Strait of Hormuz through three distinct oil price scenarios. The analysis is grounded exclusively in citable statistical sources and peer-reviewed econometric research.

This analysis provides:

• Quantification of oil and LNG supply gaps under each scenario, derived from real-time crisis data.
• Empirically derived translation of supply gaps into pump prices and headline CPI for the US, Taiwan, Japan, and South Korea, based on peer-reviewed elasticities.
• Projection of resultant inflation shocks onto policy rate trajectories, equity market valuations, and the US Dollar Index.

2. Scenario Definitions and Probabilities

3. Supply Gap Mechanics

3.1 Baseline Energy Market Mechanics

• Disrupted Flow: Approximately 20 million barrels per day (b/d) of crude, condensate, and petroleum products transit the Strait, representing ~20–25% of global seaborne oil trade.
• LNG Volume: Approximately 20% of global LNG trade passes through the Strait, primarily from Qatar's North Field.
• Current Status (March 2026): Tanker traffic has collapsed by 70–90%. Insurers have withdrawn war-risk coverage, with maritime insurance costs spiking by 50% and major carriers suspending transits.
• Regional Distribution: 80–85% of oil and LNG passing through the Strait is destined for Asian markets (China, India, Japan, South Korea).
• US SPR Maximum Technical Draw: ~4.4 million b/d.
• IEA Coordinated Release: 400 million barrels total.

3.2 The VLCC Timing Cliff

• A cohort of Very Large Crude Carriers (VLCCs), laden prior to closure, successfully departed and will return over 3–4 weeks.
• The critical "cliff" occurs when these vessels return to find terminals blocked and storage full, creating a secondary supply reduction.

3.3 Regional Energy Exposure

4. Statistical Framework for Inflation Projections

4.1 Peer-Reviewed Econometric Sources

4.2 Derivation Methodology

• US Impacts: Calibrated using UBP estimate (oil $100 → +2.0pp CPI) and time-varying pass-through literature suggesting diminished but non-zero transmission. Scaled linearly with oil price movements.
• Taiwan/Japan/Korea Impacts: Based directly on DBS regression-derived elasticities: 10% oil price increase → 0.2–0.5pp CPI increase depending on economy.
• LNG Amplification: Applied LNG congestion elasticity (0.1) to scenario-specific congestion assumptions, with congestion levels estimated from current traffic reductions (70–87%).
• State Dependency: High-inflation regimes amplify impacts per threshold SVAR evidence; applied to GS High scenario.

5. CPI Impact: Regression-Based Estimates

5.1 Oil Price Scenarios and Pass-Through

5.2 Summary Impact Table (1–3 Month Horizon)

6. Six-Month Macro Translation

6.1 Policy Rate Outlook

6.2 Equity Market Performance

6.3 Foreign Exchange: US Dollar Index (DXY)

7. Conclusion

• The JPM Low Prediction Scenario ($60–80/bbl, 20% probability) requires rapid normalization with contained impacts consistent with low-end pass-through estimates.
• The UBS Mid Prediction Scenario ($100–120/bbl, 50% probability) remains the central case. It entails oil and LNG shocks resulting in empirically-derived CPI pressure: US +0.7–0.9pp, Taiwan +1.3pp, Japan +0.6–1.0pp, Korea +0.9–1.3pp.
• The GS High Prediction Scenario ($150+/bbl, 30% probability) represents tail-risk where regression-based estimates suggest severe outcomes: US CPI +1.6–2.0pp, Taiwan +2.0–2.5pp. This would drive aggressive rate responses, deep equity drawdowns, and sharp USD rally, with statistically documented transmission mechanisms fully activated.

Appendix: Sources for Statistical Estimates

• BusinessDay NG / UBP Analysis: Oil at $100 sparks inflation, growth trade-off – UBP
• ScienceDirect / Journal of Macroeconomics: Time-varying oil price pass-through to inflation expectations
• MDPI Commodities: LNG port congestion elasticity
• DBS Bank: Taiwan oil price scenario analysis
• DBS Bank: Japan and Korea oil price sensitivity
• Atlas Institute: Comprehensive Hormuz crisis analysis
• ScienceDirect / Energy Economics: State-dependent oil supply news shocks
• The Chosun Daily: Asian market performance, March 2026