The world's MOST pressing question: How long will the war in Iran last? Current data says there is a single KEY indicator you should be watching. History and the data all align, here's what you need to know.
Before we begin, Bookmark this Article, and refer back to it as the situation rapidly evolves.
It has now been six days since the US and Israel launched strikes on Iran and the world is a completely different place. The Strait of Hormuz is effectively CLOSED for the first time in modern history, with ~92% of vessel activity coming to a halt in the key maritime region.
Yet, the war is escalating and it appears that hopes for a brief one-to-two day conflict have completely faded. This is no longer a Venezuela-like situation, with a capture of Maduro with minimal casualties and a lack of disruption to the global economy.
It appears the initial strategy was to catalyze an overthrow of the Iranian government, led by the people in Iran. However, this appears to have become less of the case as President Trump is now reportedly mulling arming regional militias or working with the existing government to appoint a US-approved new leader of Iran.
Regardless, the reality is that the situation in Iran and the broader Middle East has now grown rapidly and significantly, with the global economy beginning to price-in the consequences.
That said, in this Article we will outline why we believe oil prices are now set to become the SOLE driver of what comes next in the war between the US/Israel and Iran.
What Just Happened?
Just four months ago, in December 2025, oil prices in the US fell below $55/barrel for the first time since 2021. Gas prices were at 4+ year lows and President Trump began calling for gas prices to fall below $2.00/gallon for the first time since the 2020 pandemic.
Today, US oil prices are now up +45% since December and gas prices are soaring, now set to cross above $3.30/gallon. Brent crude oil prices are nearing $90/barrel and the Strait of Hormuz is effectively closed. Below is a brief chart annotating recent events in the oil market:
As a result, oil prices are now net POSITIVE since President Trump was inaugurated on January 20th, 2025. For those who have been keeping track, lower energy prices have been one of President Trump's TOP economic priorities, which he has consistently referenced over the last 13 months.
In fact, on October 17th, the below article was posted by the White House. This is when President Trump doubled down on obtaining $2.00/gallon gas prices.
"President Donald J. Trump’s commitment to unleashing American energy production is bringing relief at the gas pump, with gas prices nearing a four-year low across the country," the White House said.
Fast forward to today, and all of this progress has been reversed in the blink of an eye, all driven by geopolitical tensions and uncertainty.
Everyone Knows Trump Wants Lower Oil Prices
As US and Israel strikes on Iran have intensified, President Trump key policy objective of lower energy prices appears to have become a point of leverage. It is no secret that Trump wants lower energy prices and thereby lower inflation.
Amid the threat of a prolonged conflict, there simply is no way Iran can outspend the US when it comes to military assets, munitions, and equipment.
The US military budget, estimated at nearly $900 billion to $1 trillion for 2026, dwarfs Iran's, which is estimated between $10 billion and $25 billion. This massive disparity means the US spends roughly 40 to 90 times more on defense, providing superior technological, naval, and air power.
This leaves Iran (and anyone opposing the US) with one key question:
How else can we counter the military dominance of the United States?
Iran's answer: Oil prices.
The Strait of Hormuz
In the first 24-48 hours of the war beginning, Iran did not comment on the Strait of Hormuz and did not officially attempt to close the key waterway. It wasn't until March 2nd that Iran "officially" closed the Strait of Hormuz, saying, “we won’t allow oil to leave the region.”
Since then, 20+ million barrels of oil PER DAY are being impacted, reflecting 20% of global supply. But why did Iran wait to make this move? Because it became increasingly clear that US/Israeli military strikes were intensifying and this was not a "Maduro-like" operation.
Oil prices are Iran's biggest form of leverage on the global economy, particularly through the Strait of Hormuz. It also happens to be a pivotal mid-term election year in the US, with roughly 8 months until election day. Affordability is still the biggest concern for Americans, and it is not even close, as shown below:
Therefore, we believe Iran will continue to leverage oil prices as a primary driver of their strategy in this conflict, attempting to drive energy costs to unsustainable levels while leveraging the fact that President Trump is heavily focused on affordability in the midst of the mid-term election year.
Again, keep watching oil prices.
How Expensive Can It Get?
According to JP Morgan estimates, prolonged a closure of the Strait of Hormuz could send oil prices to $120-$130/barrel. In our view, prices are unlikely to get that high as intervention would be highly likely before then. But, the data below summarizes the inflationary effects of rising oil prices.
According to the above Fed study, every $10 rally in oil prices can increase inflation by ~20 bps.
Oil has already surged from $55 to $80 per barrel, implying roughly a 50 bps increase in CPI inflation. If oil rises to $100, the move from $55 would imply roughly ~90 bps of CPI pressure.
A move to $130 would imply roughly ~150 bps, potentially pushing inflation back toward ~4.5%+ depending on the starting level.
The last time we saw US inflation at 5% was in March 2023, when the Fed was aggressively hiking rates. Clearly, this is not something President Trump will accept given his strict economic agenda, as we previously outlined.
The Costs Are Already Skyrocketing And Trump Is Responding
New data shows that the effects of tensions in the Middle East are already catalyzing an economic shock. The Strait of Hormuz is effectively closed, with ~92% of traffic coming to a halt, and shipping costs are soaring.
As a result, the cost of shipping oil from the US to Asia is soaring as countries look for alternatives, as shown above.
It now costs over $29 million to hire a supertanker to take 2 million barrels of crude from the US Gulf Coast to China, the highest on record. Shipping rates have DOUBLED in just two weeks. This means shipping alone costs ~$14.50 per barrel, or a record ~18% of the oil price at current WTI levels of ~$80.
Amid the chaos, President Trump displayed the first indication that the US is at least somewhat concerned about what is happening in the energy markets.
On March 3rd, President Trump ordered the US Development Finance Corporation to provide political risk insurance and guarantees for ALL maritime trade traveling through the Persian Gulf. Trump also said the US Navy will begin escorting tankers through the Strait of Hormuz.
Immediately after this announcement, oil prices fell nearly 10%, to ~$71/barrel, and the US began ramping up strikes in Iran again. The energy crisis was briefly "contained."
At the time, oil prices were trading around $78/barrel, nearly 5% below current levels.
As oil prices rise above $81.00/barrel now, we believe another US attempt to suppress the market is coming in the very near future. In our view, it is clear that the war can only go on as long as oil prices are contained, unless the US wants to bear major economic and political costs.
Why Not Just "Open" The Strait of Hormuz?
As many have pointed out, no country “owns” the Strait of Hormuz, it's an international waterway governed by international law. But, it can still be effectively closed, technically by anyone.
Ships traveling through the Strait of Hormuz purchase war-risk insurance, which protects the shipping companies from the costs of being attacked. If insurers refuse coverage and ships stop sailing, oil flows effectively stop even if the waterway technically remains "open."
We've already seen multiple vessels targeted near the Strait of Hormuz since Saturday, with insurance costs skyrocketing. Currently, war-risk premiums are rising by 50%+ amid the war between Iran, Israel, and the US.
Insurance costs for a $100M oil tanker have jumped from ~$250,000 to millions of dollars per voyage.
This means that even if the US Navy wants to escort ships through the Strait of Hormuz, oil flows can never function as they do during times of peace. Insurance premiums will remain elevated and there are only so many ships that can be escorted at a time.
Oil prices will remain elevated until this risk is eliminated, which leads to our KEY question:
How High Can Oil Prices Rise Before Capitulation?
In our view, the US and Iran will employ vastly different strategies as the war progresses. The US will continue to push for government reform, an uprising of the people, and more military action to pressure the existing Iranian government. Iran's response will be to simply survive these strikes and exert maximum economic pressure on the US and its allies through oil prices.
Based on the assumption that every $10 rally in oil prices can increase inflation by ~20 bps, we can directly model out the below scenarios:
Oil has already surged from $55 to $80 per barrel, a $25 increase, implying about +50 bps of inflation pressure, which could push CPI from 2.4% to roughly 2.9%.
If oil rises further, the inflation impact could grow quickly: $95 oil implies ~3.2% CPI, $110 implies ~3.5%, $130 implies ~3.9%, and $150 oil could push inflation toward ~4.3%, assuming the same relationship holds.
Under our current case, inflation is already likely running close to 90 bps above the Fed's long-term 2.00% target.
In our view, President Trump would likely view oil prices at $90-$100 as the clear line in the sand, which would imply CPI inflation of ~3.1 to ~3.4% if prices remain elevated for a sufficient period of time. Keep in mind, surging oil prices will also begin to weigh on the broader market, just as we are seeing the Dow Jones Industrial Average which is now down another -1,100 points.
Therefore, as oil prices rise further toward that range, we expect US policy to shift in support of lowering oil prices and potentially even ending the war.
Before that happens, we expect to see multiple attempts to intervene, such as the March 3rd announcement about Strait of Hormuz naval protection and insurance assistance.
The efficacy of such intervention will be interesting to watch.
Conclusion: Markets Have All The Answers
Ultimately, the duration of this conflict will not be determined solely on the battlefield.
Military power between the United States and Iran is dramatically asymmetric. The US possesses overwhelming technological and financial advantages, and Iran cannot realistically match American military capacity over an extended period of time. Because of this, Iran’s most powerful form of leverage is not military strength but economic pressure, particularly through oil markets and the Strait of Hormuz.
At the same time, rising energy prices directly conflict with President Trump’s core economic objectives. Over the last year, the administration has repeatedly emphasized lower gasoline prices, reduced inflation, and improved affordability for American households. A sustained surge in oil prices would undermine all three of these goals, particularly during a crucial midterm election year.
This is why oil prices have become the single most important leading indicator for what happens next.
As long as energy prices remain contained, the conflict can continue escalating militarily. However, if oil prices rise toward the $90–$100 range and begin creating meaningful inflationary pressure, we believe the economic costs will quickly outweigh the strategic benefits of prolonged escalation.
In other words, the oil market will likely determine when this war ends.
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