There is a narrow stretch of water between Iran and Oman, roughly 33 kilometers wide at its tightest point, through which about a fifth of the world's oil and liquefied natural gas normally flows every single day. Today it is, for practical purposes, closed.
Speaking in Berlin on April 20 at a ceremony marking 75 years of Germany's association of private banks, Christine Lagarde - president of the European Central Bank - described the Strait of Hormuz as the world's most important energy chokepoint. She did not use hyperbole. In her worst-case planning scenarios from 2020, ECB economists imagined that a third of traffic through the strait might one day be halted. That was the nightmare scenario. Today, according to Lagarde, the disruption is total.
The International Energy Agency has characterized the closure as the largest supply disruption in the history of the global oil market. And that is the backdrop against which the ECB is now trying to decide what to do about interest rates - the cost of borrowing money, set by central banks to control inflation - for 350 million people across the eurozone.
The background
To understand why the Strait of Hormuz matters so much, it helps to think of it as a pipe. Most of the oil and gas that powers Asian factories, European heating systems, and global aviation passes through that pipe. There is no meaningful alternative route for most of it. Saudi Arabia and the UAE have some pipeline infrastructure that can bypass the strait, but capacity is estimated at only about 2.6 million barrels per day - a fraction of what the strait normally carries.
Tensions between Iran, the United States, and Israel escalated following failed nuclear negotiations and a prior air conflict in 2025. On February 28, 2026, military strikes on Tehran killed Supreme Leader Ayatollah Ali Khamenei. Iran responded by effectively closing the strait. Within days, Brent crude oil prices - a global benchmark for the cost of oil - surpassed $100 per barrel on March 8 for the first time in four years, peaking at $126 per barrel.
Europe had been here before, sort of. In 2022, Russia's invasion of Ukraine destroyed the assumption that cheap Russian gas would flow indefinitely to the continent. That shock took months to fully land, required enormous government spending to cushion, and pushed inflation - the rate at which prices across the economy rise - to a peak of over 10% in the eurozone. The ECB spent most of 2022 and 2023 raising interest rates sharply to pull it back down.
By early 2026, that job was nearly done. Headline inflation had been close to the ECB's 2% target for almost a year. The unemployment rate was low by historical standards, and acute labor shortages had eased. Europe had finally emerged from its post-pandemic inflation nightmare. Then the strait closed.
What is actually happening
Lagarde's Berlin speech was a careful attempt to map out three things at once: where the economy actually stands right now, what the ECB needs to see before changing interest rates, and what European governments should - and should not - do with their spending.
On the economy, she was direct about the uncertainty. The stop-start nature of the conflict - a ceasefire announced, then collapsed, a naval blockade imposed, then partially lifted - makes it almost impossible to model the duration or depth of the damage. In March, the ECB published a baseline projection alongside an adverse and a severe scenario, each driven by progressively higher energy prices. All three scenarios saw higher inflation and lower growth than expected in December.
In the baseline, headline inflation is projected to average 2.6% in 2026, with economic growth averaging just 0.9%. That is the optimistic case. The severe scenario, which assumes a longer and more intense disruption, would push inflation close to 5% and cut growth significantly more.
The supply disruption is already spreading well beyond oil. Lagarde highlighted three inputs that most people have never thought about. Around a third of global helium - essential for manufacturing the semiconductors that power everything from phones to cars - comes from the Gulf. Close to a fifth of global methanol production, used in chemicals and plastics, is also at risk. And a third of the world's fertilizer is shipped through the Strait of Hormuz, with UNCTAD warning of rising food costs and food security risks, particularly for the most vulnerable countries.
Lagarde was explicit about why fertilizer matters to a central banker. People pay close attention to two prices above all others: food and petrol. If food prices rise sharply because fertilizer is unavailable, it does not stay in the food category. It shapes what people expect prices to do across the whole economy - and those expectations have a way of becoming self-fulfilling.
Jet fuel prices in Europe have roughly doubled since the conflict began, and rationing has been imposed at some airports since early April. Dutch airline KLM has cancelled more than 150 European flights due to rising costs, and other carriers have started axing routes entirely. The IEA's head warned in April that European aviation fuel stocks were sufficient for roughly another six weeks if the strait remained closed.
The money trail
Here is the core tension Lagarde is trying to navigate, and it is sharper than it appears.
The ECB's job is to keep inflation at 2% over the medium term. When inflation rises above that, the standard response is to raise interest rates - which makes borrowing more expensive, cools spending, and eventually pulls prices back down. But raising interest rates also slows growth, pushes up mortgage costs, and can tip a fragile economy into recession.
The current situation is nasty precisely because it creates both problems at once. Higher energy prices push inflation up. But higher energy prices also drain household budgets and business margins, which slows growth. The technical term for this combination - stagnating growth alongside rising inflation - is stagflation, and it is the scenario central banks dread most because there is no clean policy answer.
Lagarde identified two factors that will determine whether the ECB tightens policy or holds firm. First: how long the disruption lasts. In 2022, it became clear early that Europe was permanently cutting ties with Russian gas. The direction of travel was known. Today the range of outcomes is far wider. On March 31, when the conflict appeared to be escalating, oil prices pointed squarely toward the adverse scenario. Ten days later, after a ceasefire announcement, prices moved back toward the baseline. The ECB is watching a war in real time and trying to set monetary policy accordingly.
Second: whether higher energy costs spread into broader prices and wages - what economists call second-round effects. In 2022, they did spread, badly. Europe was coming out of COVID-19 with strong demand, labor shortages, and supply chains already under strain. The conditions were perfect for businesses to pass every cost increase on to customers, and for workers to demand higher wages to compensate. Those conditions do not fully apply today. Growth was moderate before the conflict began, and according to ECB meeting accounts from March, investors are now pricing in interest rate hikes of about 40 basis points by end of 2026, reflecting the expectation that the ECB will need to act if inflation persists.
Then there is the government spending problem - and this is where Lagarde delivered her sharpest message. When energy prices spike, governments face enormous political pressure to help. In 2022, they spent heavily. Fiscal measures to compensate for higher energy costs across Europe amounted to 1.7% of GDP - making fiscal policy expansionary at precisely the moment the ECB was tightening monetary policy to dampen demand. Those two forces directly contradicted each other. Worse, when governments eventually withdrew those subsidies and price caps, the unwinding mechanically pushed inflation back up - prolonging above-target inflation well into 2024 and 2025.
A Bruegel tracker published in late April found that the majority of European government emergency funds in 2026 are being spent on untargeted measures - contrary to recommendations from both the European Commission and the ECB. Governments are, in other words, already repeating the mistake Lagarde explicitly warned against.
What people are doing about it
At the household level, behavioral shifts are already visible. In countries more exposed to Gulf energy imports, fuel substitution is underway. In India, many households have shifted to kerosene, coal, and wood as stopgap cooking fuels after LPG - the main cooking gas for most Indian homes - became scarce. In Europe the adjustment is less dramatic but still tangible: wealthier nations are outbidding competitors in commodity markets, securing what remains at a premium, while middle-tier economies are absorbing higher costs through rationing and reduced consumption.
Airlines are restructuring routes. Aviation has been significantly disrupted as carriers reroute flights along longer paths that circumnavigate the Middle East, adding to journey times and fuel costs, with several major Middle Eastern airports closed - collectively handling around 15% of global air traffic.
At the government level, the response has been fragmented. Japan released 80 million barrels from its strategic reserves in March. Some Gulf states are rerouting oil through overland pipelines where capacity allows. A 30-nation coalition led by the United Kingdom and France has mobilized a military response aimed at restoring freedom of navigation through the strait. But as analysts have noted, naval escorts address the physical problem of passage - they cannot restore commercial normalcy when insurance markets have essentially priced the strait out of existence for most operators.
Brent crude was trading at $105.30 per barrel as of April 25, 2026 - up from around $70 before the conflict began. That $35 difference represents the price the global economy is paying, every day, for a war it did not start and cannot easily end.
The bottom line
The Strait of Hormuz crisis has handed Europe an economic problem with no clean answer. Inflation is rising at the same time growth is slowing - the worst combination for any central bank to face. Christine Lagarde's message from Berlin is that the ECB will not move until it knows which scenario it is actually in. But governments are already spending to cushion the blow, largely without the targeting that would prevent that spending from making inflation worse. The lesson of 2022 is being ignored in real time. Whether the strait reopens quickly or the disruption drags on through the summer will determine whether this becomes a painful but manageable episode - or the moment Europe's post-pandemic recovery goes into reverse.
Timeline
- February 28, 2026 - US-Israeli strikes on Tehran kill Supreme Leader Ayatollah Ali Khamenei. Iran closes the Strait of Hormuz. Major shipping companies including Maersk, CMA CGM, and Hapag-Lloyd suspend transits.
- March 4, 2026 - Oil and LNG exports become stranded. Brent crude surges past $120 per barrel, forcing QatarEnergy to declare force majeure on all exports.
- March 8, 2026 - Brent crude surpasses $100 per barrel for the first time in four years, peaking at $126 per barrel. The largest ever monthly increase in oil prices occurs in March 2026.
- March 16, 2026 - Japan releases 80 million barrels of oil from strategic reserves, equivalent to 15 days of domestic demand.
- March 19, 2026 - ECB holds interest rates unchanged, warning that the war has made the inflation outlook significantly more uncertain.
- March 25, 2026 - ECB publishes adverse and severe economic scenarios, all showing higher inflation and lower growth than December projections.
- March 31, 2026 - Oil prices move into adverse scenario territory as conflict escalates.
- April 8, 2026 - US and Iran announce a ceasefire, though traffic through the strait remains well below pre-war levels.
- April 17, 2026 - IEA warns that European aviation fuel stocks may last roughly six weeks. The EU Commission acknowledges the jet fuel market is "tight."
- April 20, 2026 - Christine Lagarde speaks at the BdB 75th anniversary event in Berlin, warning of prolonged and uncertain economic fallout.
- April 21, 2026 - The International Maritime Organization reports approximately 20,000 mariners and 2,000 ships remain stranded in the Persian Gulf.
- April 25, 2026 - Brent crude trades at $105.30 per barrel.
- April 28, 2026 - Bruegel publishes its European energy crisis fiscal response tracker, finding most European government spending is untargeted, contrary to ECB and Commission guidance.
- April 30, 2026 - ECB keeps rates unchanged. Inflation rises to 3.0% in April, up from 2.6% in March and 1.9% in February.
Summary
Who: Christine Lagarde, president of the European Central Bank, addressing the Association of German Banks (BdB) in Berlin.
What: Lagarde warned that the closure of the Strait of Hormuz has created Europe's most complex economic challenge in 75 years - simultaneously pushing inflation higher and slowing growth. She urged governments to keep any spending support temporary, targeted, and designed to preserve signals encouraging reduced energy use. She said the ECB will not commit to any rate path until it can determine which of its three economic scenarios the eurozone is actually in.
When: The speech was delivered on April 20, 2026, two weeks after a ceasefire was announced but with the strait still largely closed to commercial traffic.
Where: Berlin, Germany, at a ceremony marking 75 years of the Association of German Banks.
Why: The closure of the Strait of Hormuz has produced the largest oil supply disruption in market history, sending energy prices sharply higher and threatening to reverse Europe's hard-won return to near-target inflation. The ECB faces the challenge of deciding whether to raise interest rates to fight inflation, even as higher energy costs are already slowing the very growth it would be further dampening.