Skyrocketing energy prices and inflation woes mount as the ‘absurd’ reality in Iran sinks in

The immediate shock of the U.S. and Israeli war with Iran is felt most acutely in fuel prices. As the fighting drags into a third week, however, the ripples are spreading across a broader swath of the economy, threatening to affect everything from groceries and work schedules to stock markets and interest rates. 

Even stagflation—the dreaded S-word that plagued American consumers during the 1970s Middle East oil crisis—is in the air again, as business leaders, analysts, and policymakers reassess the scope and duration of a conflict that the U.S. government seems to have underestimated.

At the center of the widening crisis is the false belief that the Strait of Hormuz—the narrow choke point separating 20% of the world’s oil and liquefied natural gas from global markets—would be left untouched from the conflict, said Bob McNally, former White House energy adviser under George W. Bush and founder of the Rapidan Energy Group.

“Even the possibility that a hostile power could choke traffic in Hormuz—by far the world’s most vital energy and commodity artery—was considered to be absurd,” McNally told Fortune, largely because it hadn’t happened before. “When I would tell people our analysis shows that, in a military conflict with Iran, Hormuz would be shut for weeks, people looked at me like I was high on crack cocaine.”

With crude oil benchmarks hovering near $100 per barrel—up 70% since early January—prices may rise to all-time highs of $150 or greater by the end of March if the strait remains effectively closed with no clear end in sight, McNally said. If anything, he said, prices are still artificially lower than they should be: “The world can’t grow without 20% of its energy—not in the short term. People are just unwilling to come to grips with the idea that we’re not going to get 20% of our energy back really fast.”

Oil forecaster Dan Pickering, founder of the Pickering Energy Partners consulting firm, noted that the effects in the U.S. are relatively muted thus far thanks to domestic oil and gas supplies. While U.S. fuel prices are up nearly 35% from........

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