ISLAMABAD, Pakistan—The conflict with Iran has entered a damaging new phase—a crippling limbo between war and peace that leaves the Strait of Hormuz closed and the prospect of escalation looming.
The missiles and bombs that the U.S. and Israel rained down on Iran and Tehran’s retaliatory salvos might have stopped with President Trump’s indefinite extension of a cease-fire. But the battle for control of the strait, one of the most important conduits of global commerce, is raging, leaving commodity traders on edge and helping push international oil prices above $100 a barrel on Wednesday.
Iranian forces attacked three cargo ships on Wednesday, said people familiar with the fighting. Meanwhile, the U.S. Navy sought to keep Iran from exporting oil—the country’s main revenue source—or receiving supplies. Arab mediators working to restart talks between the two sides said they feared the situation would deteriorate.
Iran’s negotiating team has toughened its tone since deciding at the last minute to skip talks this week in Islamabad, the Pakistani capital, vowing not to return to the table until the blockade is lifted, mediators said. “Diplomacy is a tool for securing national interests and security,” Iranian Foreign Ministry spokesman Esmail Baghaei said Wednesday.
“This cease-fire is inherently unstable,” said Ali Vaez, the director of the Iran project at International Crisis Group. “At sea, neither Washington nor Tehran is de-escalating so much as testing the limits of coercion. As long as the double blockade stays in place, every interdiction, warning shot or ship seizure becomes a possible trigger for a wider relapse into conflict.”
Trump said Tuesday on social media that the blockade would remain in place to keep pressure on Iran until talks between the two countries end. Iran’s Islamic Revolutionary Guard Corps has said it would keep the strait closed to what it calls hostile shipping.
“Neither side is likely to fold under economic pressure any time soon,” Vaez said.
Mediators including Turkey, Pakistan and Egypt were scrambling Wednesday to get the diplomatic process back on track. Officials said the U.S. and Iran continued to exchange messages through third parties, but reported little progress.
The Trump administration imposed the blockade earlier in April in an attempt to pile economic pressure on Iran and reclaim the upper hand after Iran closed the crucial shipping lane.
Iran’s renewed attacks on commercial vessels in the vicinity of the strait highlighted the slow-burning, tit-for-tat battle playing out in the waters around the region. The attacks came after U.S. forces on Tuesday seized a crude-oil tanker in the Indian Ocean that had been sanctioned for working with Iran.
On Wednesday, the Greek-owned Epaminondas, a Liberia-flagged containership, reported heavy damage after coming under fire from a Revolutionary Guard gunboat, according to the United Kingdom Maritime Trade Operations Center, which is affiliated with the British navy. A second cargo ship came under fire west of Iran, according to the UKMTO, which monitors threats to shipping.
A third ship, the Francesca, a boxship owned by Geneva-based Mediterranean Shipping, came under attack while waiting to cross into the Gulf of Oman, one of the people familiar with the matter said.
The Epaminondas and the Francesca were escorted to the waters off Iran’s coast after the attacks, the people familiar with the matter said. Iran’s Revolutionary Guard navy wrote on X that it had confiscated the vessels and guided them to Iran’s shore.
Despite the pounding its military has taken from U.S. and Israeli strikes, the Revolutionary Guard’s “mosquito fleet” of hundreds of small fast-attack boats can still threaten commercial shipping, which remains moribund absent ironclad assurances that vessels won’t be attacked.
The prolonged instability has heightened the risk of a nightmare economic scenario in which the strait remains effectively closed for months to come, adding to inflationary pressures and deepening a global economic slowdown.
“As it goes on, we could see oil prices getting higher and some stagflationary risks mounting, so this is going to weigh on global consumers,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, a Washington-based think tank.
More than 10 million barrels a day of oil and petroleum products—some 10% of global supply—are bottled up in the strait. Soaring costs are already forcing industries to scale down their energy consumption, a process known as demand destruction, where businesses and consumers are forced to cut back to balance the massive supply shortfall.
“There will be more demand destruction than supply addition,” Ziemba said. “That could cause cascading effects for the global economy.”
The International Monetary Fund warned last week that under a severe scenario—where the conflict continues for months and keeps oil prices elevated—world economic growth could fall to 2% in 2026, a rate seen only during the deepest recent global recessions. That compares with the IMF’s main, or “reference,” scenario, in which there is a quick resolution and global output grows by 3.1% this year.
The conflict has already proven more disruptive to global energy markets than the 1973 oil crisis. The fallout extends far beyond crude.
Supply chains are also gummed up for helium, crucial for the artificial-intelligence chips boom, and fertilizers, essential for global food security. Aluminum prices are near a four-year high that was reached earlier this month amid war-related smelter closures across the Gulf, which accounts for around 10% of global supply.
Analysts at Rabobank wrote in a note to clients Wednesday that if the Hormuz closure continues, “critical energy and goods are not going to flow for longer, with exponentially rising economic damage.”
The U.S., buoyed by its large domestic energy industry and booming AI build-out, is positioned to weather the storm. But it isn’t immune if the crisis continues. Inflation is already climbing on the back of rising commodity costs. The Federal Reserve could eventually be forced to choose between keeping inflation in check through sustained higher rates and cushioning the domestic economy.
Trump has conceded that energy prices might not fall soon and could still be higher when voters head to polls in midterm elections this fall.
A prolonged closure of the strait would hit Asia the hardest. According to the U.S. Energy Information Administration, more than 80% of the oil and liquefied natural gas moving through the chokepoint went to Asian markets in 2024. The impact is already rippling through major manufacturing hubs, forcing some factories to slash production and gas stations in Sri Lanka and Myanmar to ration fuel.
Europe is grappling with its own deepening slowdown. A growing jet-fuel shortage has hit airports across the Continent with no quick fix in sight. On Tuesday, Germany’s Lufthansa said it would cancel some European routes and 20,000 short-haul flights scheduled until October in a bid to ration jet fuel.
A continued standoff risks inflicting further damage on the Gulf countries, which have borne the brunt of Iran’s retaliatory strikes so far.
Regional energy exporters remain unable to get most of their supplies to market. Qatar suffered major damage to its LNG facilities, with repairs expected to take up to five years. Consulting firm Rystad Energy estimates that repairing damaged energy infrastructure across the region could cost as much as $58 billion.
Saudi Arabia and the United Arab Emirates are managing to route some of their oil exports around the Hormuz blockage. But the war is hitting their core business proposition—being oases of stability within a volatile region—and delivering a blow to efforts to diversify their economies beyond energy.
The war has forced the cancellation of marquee events in the Gulf including financial conferences and Formula One races, hurting the region’s booming tourism sector. It is also threatening the Gulf’s aggressive push into technology and AI, particularly after high-profile infrastructure including Amazon data centers were struck in the war.
Write to Georgi Kantchev at georgi.kantchev@wsj.com, Jared Malsin at jared.malsin@wsj.com and Summer Said at summer.said@wsj.com