The Iran War May Be Ending. How Soon Will Its Inflation Fade?

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The biggest disruption to global energy supplies in history could be coming to an end, but prices that shot up during the Iran war could be slow to come back down, experts said Monday.

A reported preliminary peace deal to end the war between the U.S., Iran, and Israel on Sunday sparked optimism in financial markets on Monday. But even if everything goes smoothly, the relief may take months to filter down to everyday prices, and it is unclear if they would ever fall to pre-war price levels.

The outcome hinges on the Strait of Hormuz, the vital waterway between Iran and Oman, which, in normal times, carries 20% of the world's oil supply to global markets from the Persian Gulf. The closure of the strait has pushed up oil prices, contributing to a spike in gasoline prices and overall inflation in the U.S. in recent months.

Both sides have reportedly agreed to allow commercial traffic to resume through the strait, potentially relieving pressure. President Donald Trump said the strait would be officially open on Friday, and on Monday, he said some vessels were already going through.

"Ships are starting to move, many loaded up with oil, out of the Strait of Hormuz," Trump posted on social media.1

The reopening of the Strait of Hormuz would set the stage for further reduction in oil prices, which would trickle through to gasoline and other products, but getting back to the prewar baseline isn't guaranteed, experts said.

However, despite oil prices falling, they were still well above their prewar norm, and the snarled supply chains could take months to untangle, economists said.

"The strait is the alpha and the omega of the conflict from the oil market’s perspective," Chris Lafakis, an economist at Moody's Analytics, wrote in a commentary. "Its closure was unsustainable, and the strait was the largest source of political and economic pain for both the U.S. and Iran."

As of Monday, a barrel of crude oil by the Brent international benchmark was $83, well below its $118 peak at the height of hostilities, but up from about $60 at the beginning of the year.2 A gallon of regular unleaded gasoline averaged $4.07 nationwide Monday, according to AAA, down from its recent peak of $4.56 but above the $2.98 national average before the war.3

Prices have fallen for the past three weeks amid optimism about the strait possibly reopening, and that trend will likely continue, Patrick DeHaan, head of petroleum analysis at GasBuddy, wrote in a commentary.

"The real test now shifts to the Strait of Hormuz, where any reopening and resumption of normal oil flows would be the clearest signal that this relief is durable," he wrote. "For now, the national average could continue falling, provided there isn’t a drastic reversal and the U.S. and Iran continue moving in a positive direction.”

However, progress toward reopening the trade route was uncertain, and forecasters expected oil prices to remain elevated for months to come. Major questions include whether the preliminary deal would go through, whether the cease-fire would hold, and whether ship captains would brave the journey.

BIMCO, a Copenhagen-based trade group representing ship owners, said there was no indication the announcement of an agreement had actually changed anything so far.

“The statements by the U.S. and Iran are currently unclear and do not offer sufficient information regarding key aspects such as timings and safe routes," Jakob Larsen, Chief Safety & Security Officer at BIMCO, said in a statement. “Due to lack of details and a history of overly optimistic reassurances, we believe the security situation for the shipping industry remains volatile, and we still consider it very risky for ships to commence transits at this point."

For months, economists have warned the economic damage from the war will persist even if the strait fully reopens.

Several other factors are likely to keep oil prices higher for months or years to come, Lafakis wrote. Energy facilities damaged in the war must be repaired. Countries that depleted their oil reserves to get through the crisis will buy more oil to replenish their stockpiles, keeping prices higher for longer. And after that, there will be a permanent "risk premium" because travel through the strait will be considered more dangerous than before the war.

All that means Brent crude will likely average $89 a barrel in 2026, and $76 a barrel into 2027, Lafakis wrote.

The price of oil has a major impact on inflation and the U.S. economy. Every $10 increase in the oil price pushes up inflation by 0.2 percentage points and drags down GDP growth by 0.1 percentage point, former Federal Reserve Chair Jerome Powell said in 2022, citing Fed research. That means the economy and consumers are likely to feel the impact of the war as long as those prices stay elevated.

"No relief is in sight for the foreseeable future," Joachim Nagel, an official at the European Central Bank and president of Germany's Bundesbank, ​said in a speech Monday, as reported by news outlets. "On the contrary: even if the Strait of Hormuz were to become ‌navigable ⁠again soon, it will take months for the oil supply to return to normal."4