Dallas Fed — Hormuz Closure Scenario Model

Date Compiled: 2026-04-16

Type: Scenario Framework — Dallas Fed

Related Questions: Q1 / Q2 / Q3

Institution: Federal Reserve Bank of Dallas

Publication Date: March 20, 2026

Number of Scenarios: 3

Key Parameter: Duration of Strait of Hormuz closure (1, 2, or 3 quarters)

Overview

The Dallas Fed analysis, authored by Kilian, Plante, and Richter, uses a formal econometric model of geopolitically driven oil supply disruptions to quantify the economic impact of a full Hormuz closure. It is unique among institutional forecasts in distinguishing outcomes by closure duration and in modeling the GDP recovery path. The analysis confirms the current closure is historically unprecedented — removing ~20% of global oil supplies, 3–5× larger than the 1973, 1979, and 1990 shocks.

Scenarios

Scenario 1: One-Quarter Closure

Parameter: Closure lasts one quarter (Q2 2026)
Key Assumptions: Full Hormuz closure removes ~20% of global oil supply for approximately 90 days; no significant infrastructure damage; recovery begins in Q3 2026
Key Outputs: WTI peaks at ~$98/barrel in Q2 2026; global real GDP falls 2.9 percentage points annualized in Q2; recovery in Q3 shows +2.2% annualized rebound; by end-2026, GDP remains 0.2% below pre-closure level; by end-2027, remains 0.1% below

Scenario 2: Two-Quarter Closure

Parameter: Closure lasts two quarters (Q2–Q3 2026)
Key Assumptions: Closure extends through Q3; WTI rises further before easing; no permanent infrastructure damage assumed
Key Outputs: WTI peaks at ~$115/barrel in Q3 2026 before falling to $76 in Q4 2026; global real GDP impact remains negative through Q4 2026; full-year 2026 Q4/Q4 GDP reduction of 0.3 percentage points

Scenario 3: Three-Quarter Closure

Parameter: Closure lasts three quarters (Q2–Q4 2026)
Key Assumptions: Extended closure through year-end 2026; no permanent infrastructure damage assumed; recovery modeled into 2027
Key Outputs: WTI reaches as high as ~$132/barrel by year-end 2026; full-year 2026 Q4/Q4 GDP reduction of 1.3 percentage points; growth remains negative through end-2026

Institutional Assessment

The Dallas Fed's three-scenario framework provides the most granular duration-based modeling of the Hormuz closure. The key insight is that the magnitude of this shock (20% supply removal) is 3–5× larger than any prior geopolitical oil disruption in the modern era. Even the most optimistic one-quarter scenario produces a material GDP contraction and incomplete recovery. The analysis also quantifies the mitigation benefit of alternative routing: reducing the shortfall from 20% to 10% cuts the quarterly GDP impact from −2.9 to −1.6 percentage points. The U.S., now roughly petroleum trade-balanced due to the shale boom, is modeled as experiencing effects similar in magnitude to global effects.

Source

Derived from Dallas Fed Economic Notes on the macroeconomic impact of the Hormuz closure and oil supply disruption scenarios.

dallas-fed-scenarios.md