The second night of the U.S. attacks on Iran, Tehran's closure of Hormuz and the economic shock wave that the world has been dreading since February.

There is a 33-kilometre-wide passage between the Arabian Peninsula and the Iranian coast. It took about 20 minutes to cross by car. But at the moment it's the most perilous stretch of water in the world, a choke point that affects how much Tokyo, Mumbai, Berlin and Houston spend on fuel, whether the Federal Reserve produces disinflation or inflation, and whether a delicate string of diplomacy is taut or tears asunder.

Iran's highest military body on Thursday said it had shut down the Strait of Hormuz in response to what Tehran called a "dangerous provocation" by the United States that launched its second night in a row of strikes against Iranian targets, as confirmed by the U.S. Central Command. Any ship trying to pass will be fired upon, Tehran warned. Oil tankers, commercial boats, NO EXCEPTIONS. In little more than a handful of hours, the price of Brent crude had jumped above $94 per barrel. WTI futures jumped almost two dollars in Singapore before the markets even had a chance to catch their breath on the news.

This can mean a lot.

The Strait of Hormuz always was the weakest link in the global energy chain. About 20 million barrels of crude oil and petroleum products pass through it each day, or 27% of the world's total seaborne oil trade. The amounts of LNG traded through are equally mind-boggling: Japan and South Korea, both huge importers of LNG, have seen spot prices soar 48% since the conflict intensified in late February. The International Energy Agency's chief said that what is happening is "the greatest global energy security challenge in history. Any argument that that's an exaggeration is unconvincing.

The February 28 attack on Iranian infrastructure by U.S. and Israeli forces, which Washington labeled "coordinated precision operations," has escalated into a conflict qualitatively different from the previous rounds of Gulf tension. In those initial strikes, Iran's supreme leader, Ayatollah Khamenei, was killed. His son has now taken over. Tehran has acted methodically and in a wide-ranging fashion, targeting military bases and civilian facilities in the UAE, Saudi Arabia, Qatar, Kuwait, Bahrain, Iraq, Oman and Jordan. Then the thing analysts have been predicting for decades the closing of Hormuz.

Thursday, Defense Secretary Pete Hegseth spoke from US Central Command headquarters in Tampa and didn't bother to hide the strategic rationale. The strikes are not punishment, he said they're negotiating leverage. “You can tell when people are tap, tap, tapping on a deal,” Hegseth told journalists. Rather, they are going to have, "tap, tap, tap bombs dropping on key facilities in Iran. The Pentagon is “ready to set the terms in a way to make sure we get the kind of deal President Trump is looking for,” he added. Iran has been "playing us for suckers," Trump himself has said, and he pledged the attacks would continue “until we come up with a good deal.”

The deal in question is allegedly a nuclear one. Iran had previously agreed to a tentative framework in which it would not hand over its stockpile of highly enriched uranium but would dilute it, the New York Times reported earlier. A ceasefire was agreed on April 8 that lasted several weeks before this current escalation. UAE's state-owned oil company, which is no disinterested party, has already said the full flows through Hormuz will not come back until 2027, even if there is a quick deal. There is no quick restoration of the situation: the physical damage to the infrastructures in the region and the psychological damage to the shipping confidence.

Business math is hard. The Dallas Fed's modelling suggested that if the Strait were completely closed and that WTI crude prices hit $100 a barrel, the annualised US headline inflation would be 1.3 percentage points higher than the Fed's pre-conflict rate. Each $10 increase in oil costs translates to about 20 basis points of core U.S. inflation. The Fed had been carefully building a rate-cutting trajectory into 2026 that's now a much tighter path. The markets had already baked in the uncertainty weeks ago in advance of Thursday's announcement, with the odds of the Fed holding off in June climbing to 47%. During the course of the conflict, the 10-year Treasury yield rose half a point. At $170 a barrel, the inflationary and growth effects roughly double and become a “stagflationary shock that can alter monetary policy and the US midterm political environment,” Bloomberg Economics wrote pointedly.

It's not just oil that's being disturbed. But there is a hidden story: LNG. The list of commodities that pass through Hormuz includes fertilisers, helium, petrochemicals and more. In oil-importing developing economies, the second order effects involve fiscal solvency and exchange-rate stability, and these are already under stress due to structural vulnerabilities and mid-easing cycle. The IEA is right to call this an historically unprecedented energy shock, as the numbers say: the disruptions are 2 to 3 times greater than that of the 1973 OPEC embargo, the previous reference point when it comes to geopolitical oil supply shocks.

But, against this background, the diplomatic scene is at best not dire “not dire” does a lot of work as a description. Mediators from Pakistan and Qatar have played a key role in back-channel negotiations. Iran's foreign minister is in Geneva for second round of nuclear talks. In late May, Trump publicly claimed he had reached an agreement that was "largely negotiated. Hegseth, who spoke at a conference for Indo-Pacific partners the part of the world most directly affected by the prospect of a long shutdown of the Strait of Hormuz said a deal was slated to "reshape the global map" on energy, calling it an American energy future. It's not "tacky" writing. It indicates that Washington views this battle as a chance to revise energy dependency in a manner that will advantage US LNG exporters and shale producers.

The US-Israel factor has added a new set of problems. While not directly addressing Netanyahu's relationship with Washington during the conflict, Vice President JD Vance told CBS News on Tuesday that Netanyahu had "certainly gotten some things wrong" and was a "good partner. What was more telling was Vance's admission that, when U.S. and Israeli interests conflict, the United States must pursue its interests. Unfortunately for the Israelis, he said, The term landed hard in Jerusalem, especially as it has already been reported that Netanyahu cancelled a major planned strike on Iran after Trump threatened to leave Israel "on its own" if it launched an attack. Israelis have seen the landscape change with a poll revealing 61 percent desire for new political leadership. In a testament to the economic resilience of Israelis, the country somehow attracted $8.6 billion of VC funding in spite of the war, but the strong shekel is damaging their cash runway by decreasing the dollar purchasing power of foreign capital.

The question is whether the strikes are succeeding in accomplishing what they have said they seek to accomplish, or whether they are strengthening Iran's resolve at a time when a deal was said to be close. One interpretation of Tehran's threat to close the Straits of Hormuz is that it is a counter-escalation meant to be sufficient to cause economic pain to Washington's allies and the global system to move more quickly toward a more favorably negotiated diplomatic solution, one that would be more favorable to Iran. There's logic to the closure: The longer Hormuz remains closed, the more pressure will be placed on Gulf states, Asian importers and European allies to pressure Washington to reach a settlement. It is the coercive diplomacy with a choke hold on the world's oil supply.

The other version is that, with the Islamic Republic's leadership now toppled and its military forces weakened after months of strikes, it is finally fighting back with the last weapon it has: economic disruption, and that the talks on the nuclear file have not been resolved. The IAEA board voted this week for Iran to report on its stockpiles of uranium and for IAEA inspectors to be given access. Tehran's stance that any mechanism for the control of Hormuz must include Iran, Oman and bordering states, and that the United States “has nothing to do with it” continues to be one of sovereignty despite its military vulnerabilities.

In diplomatic and analytical circles there is a view gaining traction that Trump's strategy of maximum pressure while negotiating is leading to an inherent paradox: the strikes designed to speed up a deal are also giving Tehran's hardliners leverage to avoid compromises, while simultaneously causing collateral damage on the world's economy that Washington's own allies will have to shoulder. “Those strikes that will happen tonight, they will be strong, they will be clear. If they happen tomorrow night, they will be strong, they will be clear,” Hegseth's statement, one of intent and also an implicit admission that the deal is not yet here, is a clear warning to the union.

This is not the first time that the Strait of Hormuz is facing a threat. It has never been officially closed and there have been shoot-on-sight orders in effect during a full-fledged shooting war. The situation unfolding before the world's eyes is unprecedented. The economic modelling is going in one direction. The diplomatic messages say otherwise. In between them is a deal that both sides say they want, but they just can't get done and 20 million bpd of the world's oil supply hangs in the balance.