Counting the damage
On May 20, the International Monetary Fund published a working paper that attempted something nobody had done in a rigorous way: estimate the total global economic cost of the Strait of Hormuz crisis over a full year. The number they arrived at was $1.05 trillion. That is roughly the GDP of the Netherlands, or about 1 percent of global GDP, wiped out by the disruption of a 21-mile-wide waterway.
The IMF paper, authored by a team led by chief economist Pierre-Olivier Gourinchas, uses a computable general equilibrium model calibrated to 2025 trade data. It accounts for higher energy prices, disrupted supply chains, lost trade volumes, reduced industrial output, and the fiscal cost of government responses. It is a conservative estimate in several ways. It assumes the crisis does not escalate into a broader regional war. It assumes the Cape of Good Hope rerouting continues to function without disruption. It assumes no major financial contagion from the oil price shock. If any of those assumptions break, the real cost will be higher.
I spent the last week reading the paper in detail, speaking with two of its co-authors, and cross-referencing their findings with independent analyses from the World Bank, the Institute of International Finance, and the Oxford Institute for Energy Studies. The IMF's number is broadly consistent with what other forecasters are finding, though the range across institutions is wide: from $700 billion at the low end (IIF, assuming a quick resolution) to $1.8 trillion at the high end (Oxford, assuming a prolonged closure with military escalation). The IMF's $1.05 trillion sits in the middle, and it is the most methodologically transparent estimate available.
China: the biggest loser by volume
China absorbs the largest absolute cost at an estimated $280 billion. That is not surprising. China imported roughly 10.8 million barrels per day of crude oil in 2025, and about 40 percent of that, or 4.3 million barrels per day, transited the Strait of Hormuz. The remaining 60 percent came from Russia, West Africa, and the Americas, mostly via routes that do not pass through Hormuz. But 4.3 million barrels per day is a massive volume to lose access to, even partially.
The IMF model estimates that China's effective oil supply from Hormuz-dependent sources has dropped by about 60 percent since the crisis began, from 4.3 million to roughly 1.7 million barrels per day. Some of that reduction is offset by increased purchases from Russia (via the ESPO pipeline and overland routes) and from Venezuela and Brazil (via the Cape of Good Hope). But the offset is partial. China is running its strategic petroleum reserve at a draw rate of approximately 400,000 barrels per day, according to satellite imagery analysis of its above-ground storage tanks by Orbit Intelligence. At that rate, the reserve, estimated at roughly 400 million barrels, would be significantly depleted within six to eight months.
The cost to China is not just about oil prices. It is about industrial output. Higher energy costs feed through to manufacturing, transportation, and petrochemicals, the sectors that drive China's export economy. The IMF estimates that Chinese industrial production will fall by 2.3 percent over a twelve-month crisis period if oil remains above $100 per barrel. That translates to roughly $160 billion in lost output, on top of the direct energy cost increase.
I spoke with a Beijing-based energy economist who works with a government-affiliated think tank. He told me, on condition of anonymity because he was not authorized to speak to foreign media, that the Chinese government's internal estimate is actually higher than the IMF's. "They are looking at a range of $300 to $350 billion," he said. "The difference is that they include the cost of emergency infrastructure projects: accelerating pipeline construction from Central Asia, expanding rail tanker capacity from Russia, and building new strategic storage. Those are costs the IMF model does not fully capture."
India: the most vulnerable major economy
India's estimated cost of $150 billion is, relative to GDP, the most damaging of any major economy. India imported about 4.9 million barrels per day of crude in 2025, and roughly 65 percent of that came through Hormuz. Unlike China, India has limited alternative supply routes. It has no overland pipeline from Russia. It has no strategic petroleum reserve comparable to China's or the United States'. Its refining sector is configured to process the medium-sour crude grades that come from the Gulf, and switching to alternative crude types requires adjustments that reduce refining efficiency by 5 to 15 percent.
The direct energy cost increase for India is estimated at $55 billion over twelve months. But the cascading effects are larger. India's current account deficit, which was already under pressure, is projected to widen from 1.8 percent of GDP to roughly 4.2 percent, according to a Reserve Bank of India analysis leaked to Reuters. The rupee has depreciated 7 percent against the dollar since April. Inflation, which the RBI had managed to bring below 4 percent, is now running at 6.8 percent and rising. The Indian government has cut fuel taxes twice since the crisis began, at a fiscal cost of roughly $18 billion, to cushion the impact on consumers. Those tax cuts are not sustainable.
The fertilizer sector is an underappreciated casualty. India imports about 30 percent of its urea and 50 percent of its diammonium phosphate from Gulf producers, principally Saudi Arabia, Qatar, and Oman. The Hormuz disruption has cut those imports by roughly 40 percent. India's Kharif planting season, which runs from June to October, depends on timely fertilizer availability. A 40 percent shortfall could reduce crop yields by 8 to 12 percent, according to the Indian Council of Agricultural Research. That is not just an economic number. That is a food security risk for 1.4 billion people.
Japan and South Korea: energy importers with no alternatives
Japan's $100 billion cost and South Korea's $70 billion share a common root cause: both countries import virtually all of their oil, and both are heavily dependent on Middle Eastern crude. Japan gets about 95 percent of its crude from the Gulf. South Korea gets about 72 percent. Neither country has meaningful domestic production. Neither has overland pipeline alternatives. The only option is to ship oil from further away, at higher cost, through a longer route.
Japan has been drawing down its strategic petroleum reserve at a rate that the Ministry of Economy, Trade and Industry has described as "concerning." Under Japanese law, the government is required to maintain a reserve equivalent to roughly 200 days of net imports. As of May 20, that reserve stood at approximately 160 days. At current draw rates, it will fall below the legal minimum by August. METI has not publicly discussed what happens then, but a former METI official I spoke with said the government is preparing an emergency amendment that would temporarily lower the legal minimum to 120 days.
South Korea faces a similar arithmetic. Its reserve covers about 90 days of imports. The government has already implemented fuel rationing for public sector vehicles and has asked private companies to reduce non-essential business travel. These are modest measures, but they signal that Seoul is treating this as a sustained crisis, not a temporary disruption.
The Gulf states: producers who cannot sell
Saudi Arabia's $60 billion cost and the UAE's $45 billion represent the other side of the equation. These are the countries that produce the oil but cannot get it to market. Saudi Arabia exported roughly 7.5 million barrels per day of crude in 2025, and virtually all of it moved through Hormuz. The kingdom has the East-West pipeline, which can move about 5 million barrels per day from the Gulf to the Red Sea terminal at Yanbu, bypassing the strait. But Yanbu's loading capacity is limited, and the pipeline has been running at maximum throughput since April. Saudi Arabia has increased Yanbu loadings by roughly 2 million barrels per day, but that still leaves about 3 million barrels per day of production with nowhere to go.
That stranded production is costing Saudi Arabia roughly $210 million per day in lost revenue at current prices. Over twelve months, that would be $76 billion. The IMF's $60 billion estimate for Saudi Arabia is lower because it assumes some of the stranded production will eventually find alternative routes, including increased Yanbu exports and spot sales to buyers willing to accept the risk of loading in the Gulf. But the core problem remains: the world's largest oil exporter is cut off from its primary shipping route, and its backup infrastructure is not adequate to handle the volume.
The UAE faces a worse situation because it has no pipeline bypass at all. The Abu Dhabi National Oil Company exports roughly 3 million barrels per day, all through Hormuz. The Fujairah terminal on the east coast can receive some crude via a 1.5 million barrel per day pipeline from Habshan, but that pipeline has been running at capacity since April and Fujairah's storage is full. ADNOC has been forced to curtail production by approximately 800,000 barrels per day.
The United States: insulated but not immune
The US economic cost of $90 billion is relatively small compared to the size of the American economy, roughly 0.3 percent of GDP. The United States is now a net oil exporter, and the Hormuz disruption has actually increased revenues for US shale producers who can sell into a tight global market at premium prices. But the benefit to producers is offset by the cost to consumers. Gasoline prices in the United States have risen from an average of $3.20 per gallon in March to $4.85 per gallon as of May 27. That increase alone costs American consumers roughly $250 million per day.
The Federal Reserve has signaled that it may delay planned interest rate cuts because of inflation driven by energy costs. That delay ripples through the entire economy. Higher-for-longer rates mean higher borrowing costs for mortgages, auto loans, and business investment. The IMF estimates that the monetary policy feedback effect accounts for roughly $30 billion of the total US cost.
There is also the fiscal cost of the military response. Operation Project Freedom and the broader naval buildup in the Gulf have cost the Pentagon an estimated $2.8 billion so far, according to a Congressional Research Service report. Over twelve months, that cost could reach $12 to $15 billion. It is a fraction of the defense budget, but it is real money being spent on a single crisis with no exit strategy.
The trillion-dollar question
The $1.05 trillion estimate is a snapshot based on the current state of the crisis. It assumes no escalation and no resolution. If the crisis ends in June through a diplomatic agreement, the actual cost will be much lower. If it escalates into a full-scale regional war, the cost will be much higher. The Oxford Institute for Energy Studies estimate of $1.8 trillion assumes that oil reaches $150 per barrel, which would require a complete closure of Hormuz for six months or more.
What the number does not capture is the non-economic damage. The 22,500 stranded seafarers. The countries facing food shortages because fertilizer shipments are stuck. the political instability that rising food and fuel prices will cause in import-dependent nations across Africa and South Asia. The IMF model counts GDP. It does not count hunger, or riots, or governments falling. Those costs will show up later, in ways that are harder to measure but no less real.
One trillion dollars. For a waterway that is 21 miles wide. That is the price of inaction, and the meter is running.