Federal Reserve (May 12, 2026) – The conflict in Iran that erupted in late February represents one of the largest global energy shocks in decades. The Strait of Hormuz—a key shipping channel for energy trade—remains closed as of April 2026, disrupting roughly 20 percent of global oil trade flows and leading domestic oil prices to jump by roughly 60 percent since late February. Although global energy inventories and excess oil supply leading into the conflict have kept prices from moving even higher, these buffers have limitations. Moreover, while oil futures prices currently remain subdued, both futures and spot oil prices could move higher if the disruption to energy transportation and production persists.
Although this energy shock poses challenges for consumers and businesses nationwide, it will likely generate greater severance tax revenue for Rocky Mountain states, which are relatively large energy producers. In this edition of the Rocky Mountain Economist, we summarize the characteristics of the recent Middle Eastern energy shock, outline how current circumstances differ from the recent past, and highlight the implications for severance tax revenues in Rocky Mountain states.
Iran Conflict and Energy Shock
In late February, joint U.S.-Israeli strikes on Iran and the subsequent retaliation disrupted major energy trade routes, curtailing available energy to global markets. Chart 1 shows that vessel traffic through the Strait of Hormuz—a thoroughfare for more than 20 percent of global oil and petroleum products—dropped by more than 90 percent between February and April 2026 (EIA 2025).
