A war the world pays for

The Strait of Hormuz is not just a shipping lane; it is a global public good – something whose benefits are shared by all and whose protection depends on collective restraint. When such a system is weaponised, the costs do not fall on those who wield it most directly. They are externalised – onto countries, firms, and households far removed from the conflict.

That is the situation the world now confronts. For months, passage through Hormuz has been severely curtailed, with no credible assurance of safe navigation. Analysts have long warned what such a disruption would entail. The International Energy Agency has suggested that even a partial blockage could push oil prices past $150 per barrel, with more extreme scenarios closer to $200. Built around short-lived crises, these estimates begin to look conservative if disruption persists.

When the strait becomes a weapon

The Strait of Hormuz was open before the war. Its disruption followed the escalation triggered by US and Israeli military action against Iran. But once the chokepoint is drawn into conflict, the question shifts – from who initiated the crisis to how it is sustained and who pays for it.

The consequences extend well beyond energy markets. A sustained disruption feeds into freight rates, insurance premiums, and currency markets, raising inflation while depressing growth. In short, it becomes a systemic shock.

What makes this moment particularly dangerous is not simply the scale of disruption, but the absence of substitutes in the near term. When the Suez Canal closed in 1967, ships rerouted around Africa. When supply chains froze during the pandemic, production slowed and then recovered. Hormuz is different. There is no alternative sea route for Gulf oil, no parallel canal, and no scalable pipeline capacity that can be activated quickly. Existing bypass infrastructure carries only a fraction of normal flows. In the near term, there is no meaningful fallback.

This lack of redundancy turns a regional conflict into a global vulnerability. Countries are affected not because they are geographically proximate to Hormuz, but because they are embedded in a system with little slack. When that system is disrupted, the shock travels rapidly across borders and sectors.

Yet, despite these consequences, both sides appear willing to sustain the disruption – not because the costs are negligible, but because they are distributed in a way that allows decision-makers to bear only a fraction of them.

Who pays for the conflict

This is a classic case of cost externalisation – where those making the decisions bear only part of the cost, while the rest is pushed onto others.

Much of the commentary on Iran's behaviour frames it in terms of a high "pain threshold." But this misses the underlying political economy. Sanctions and conflict have imposed severe strain—through inflation, currency depreciation, and declining real incomes – yet that burden is unevenly distributed. The core security apparatus has shielded itself from much of the hardship while shifting costs onto households and the private sector. What appears as resilience is, in practice, a system of selective suffering.

At the same time, constraining passage through Hormuz transmits costs outward. By tightening supply and driving up prices, the conflict imposes inflation and fiscal stress on energy-importing economies– particularly in Asia and Africa. Yet these regions have limited influence over the strategic calculations driving the crisis. Their economic pain does not translate into political leverage.

A similar asymmetry exists on the other side. In the United States, policymakers face political risks from higher energy prices, but the domestic impact is moderated by diversified supply and the structure of the economy. The costs imposed on the rest of the world do not feed directly into US political incentives.

The calculus is further complicated by the role of Israel. While not directly dependent on Hormuz flows, Israel has strong incentives to sustain pressure on Iran's regional capabilities. This creates an asymmetry: an actor with limited exposure to the economic fallout, but a higher tolerance for escalation – reinforcing pressure without internalising its global costs.

Other major powers have not filled the gap. China, despite being the largest beneficiary of Gulf energy flows, has preferred diplomacy over security provision. Russia benefits from tighter energy markets and has little incentive to restore normal flows. The European Union and the United Kingdom remain committed to open sea lanes but lack the capacity or cohesion to enforce them at scale. The result is a vacuum: a global public good without a credible guarantor.

The Gulf states, despite being most directly exposed, have also failed to act collectively. Saudi Arabia and the United Arab Emirates possess limited bypass infrastructure and maintain security ties with the United States, but remain wary of escalation with Iran. Qatar and Oman have leaned toward mediation. Divergent threat perceptions, unequal exposure, and varying dependence on external guarantees have prevented a unified response. Those with the strongest incentive to keep Hormuz open are also those least willing to risk escalation to secure it.

Efforts at mediation, including those led by Pakistan, reflect this constraint. Pakistan has strong incentives to prevent escalation, but lacks the leverage to enforce outcomes. Mediation can slow deterioration, but it cannot substitute for collective security provision.

What emerges is not simply a conflict, but a failure of the system. The chokepoint becomes a mechanism through which the costs of war are redistributed globally, while those driving it remain partially insulated.

The result is a global public bad – harm that is widely shared, difficult to avoid, and imposed even on those who had no role in creating it.

Over time, the world will adapt. Demand will adjust, new infrastructure will be built, and supply chains will reconfigure. But adaptation takes time – and the costs are incurred upfront. The immediate effect is a redistribution of economic pain across countries and populations that had no role in creating the crisis.

Why this cannot last

This equilibrium, however, is not stable. The ability to externalize costs diminishes as markets adjust and demand softens, even as domestic political and economic pressures within the belligerent states continue to rise. This creates a widening gap: declining external leverage alongside rising internal strain.

In such conditions, restraint becomes harder, not easier. A conflict sustained through gradual attrition risks shifting toward abrupt escalation – not because it is rational, but because it becomes politically unavoidable.

The danger is not that the conflict will persist, but that it cannot persist without breaking into something worse.

A coordinated solution remains conceivable. It would require alignment of incentives across key actors: recognition in Washington that escalation carries widening costs; recognition in Tehran that externalization has limits; and a willingness among Gulf states and other powers to move from passive exposure to active risk-sharing. None of these conditions are in place. But as returns to disruption diminish and costs accumulate, the pressure for coordination will grow.

Whether that pressure produces restraint or miscalculation remains uncertain. The same forces that make the current equilibrium unsustainable also make it dangerous. A resolution is possible – but increasingly contingent on actors internalizing costs before events force that choice upon them.

The longer that choice is deferred, the narrower the path to avoiding a more destructive outcome.

Zahid Hussain is a former lead economist of The World Bank, Dhaka Office