Dr. Hamad Kasasbeh

What if the escalating confrontation between the United States and Iran were to disrupt the Strait of Hormuz and Bab el-Mandeb at the same time, whether through an actual closure or by making passage through them exceptionally dangerous and costly? The Middle East would then face more than a limited military crisis. It would confront a dual shock to energy and trade that could quickly develop into a triple shock to supply, prices, and confidence. The two straits might remain open militarily, yet become nearly closed economically once the cost of passage rises enough to disrupt the normal functioning of markets.

Around 20 million barrels of oil pass through the Strait of Hormuz each day, making it one of the main arteries of global energy markets, while Bab el-Mandeb serves as a vital gateway linking the Gulf and Asia with the Red Sea, the Suez Canal, and Europe. Their simultaneous disruption would therefore do more than raise oil prices. It would increase the cost of delivering nearly everything that energy produces and ships carry, from food and raw materials to machinery and consumer goods.

The effects would begin on the supply side, as oil and gas flows decline, shipments and production inputs are delayed, and vessels are forced to reroute around the Cape of Good Hope, potentially adding between ten days and two weeks to a voyage. This would raise fuel consumption, transport and storage costs, and working-capital requirements, while disrupting production schedules. The crisis would then move from maritime chokepoints into factories, markets, and supply chains.

The shock would then move rapidly into prices. Higher oil, freight, and insurance costs would not remain confined to a single sector; they would feed into production, transport, food, tourism, and aviation costs, and appear in higher inflation, wider trade deficits, and greater pressure on public budgets. Energy-exporting states may discover that a higher oil price offers little benefit if exports cannot move, while importing states would find that the problem extends beyond buying energy at a higher price to paying more for most goods and production inputs on which their economies depend.

The deepest and most persistent impact, however, would emerge through declining confidence. A prolonged threat would lead investors to postpone decisions, banks to tighten financing conditions, insurers to raise premiums, and tourism and aviation companies to reassess their exposure to the region. The crisis would no longer be merely a shortage of goods or a rise in prices; it would become a deterioration in expectations and a contraction in confidence, weighing on investment, consumption, and growth.

None of these shocks would require a formally declared closure. It may be enough for passage to become irregular or highly risky for shipping companies to hesitate, additional charges to be imposed, and the effective capacity of the two waterways to fall. At that point, fear itself acquires a price, and the risk of attack is embedded in the cost of every barrel, shipment, ticket, and financing contract. The straits would remain open militarily, but closed economically.

This is where the concept of a "geopolitical risk premium" becomes central: the additional cost borne by regional economies simply because they are located near confrontation lines and threatened trade routes, even when they are not direct parties to the conflict. This premium extends beyond oil, shipping, and insurance to borrowing costs, asset valuations, investment decisions, and tourism flows, turning geography, in the absence of alternatives and resilience, from a source of strategic importance into a financial burden that constrains growth and raises the cost of capital.

That premium becomes more deeply embedded when tensions persist. The most dangerous scenario may not be a broad and rapid war, but a prolonged condition between war and peace, marked by limited strikes, repeated threats, and intermittent disruption to shipping and aviation without a clear settlement. A short shock may be absorbed gradually by markets; a prolonged war of attrition, by contrast, fixes risk into prices, contracts, and investment decisions, forcing economies to operate under a permanent cloud of uncertainty.

The region therefore needs to move beyond managing crises after they occur and build real economic capacity to absorb them: distributed strategic reserves of energy, food, and medicine; a flexible regional network linking ports, pipelines, roads, and railways so that trade and energy flows can be redirected quickly when any route is disrupted; and a shared mechanism to cover maritime risks and contain sharp increases in freight and insurance costs. States may not control whether the straits remain open, but they can reduce the economic price they pay when navigation through them is under threat.