Examining the Impact of the Closure of the Strait of Hormuz on the Volatility of Major Global Stock Market Indices

Document Type : Research Article

Authors

1 Associate Professor, Department of Petroleum Economics and Energy Diplomacy, Faculty of Petroleum, University of Petroleum Industry, Tehran, Iran (Corresponding Author).

2 M.Sc., Department of Economics and Islamic Banking, Faculty of Economics, Kharazmi University, Tehran, Iran.

Abstract

The Strait of Hormuz, as one of the world’s most important geoeconomic corridors, plays a key role in energy transportation and in shaping expectations in international financial markets. This study examines the impact of a blockage of the Strait of Hormuz on the volatility of major global stock market indices as a severe geopolitical shock, since disruption in this vital energy trade chokepoint can lead to volatility spillovers in international financial markets. The main objective is to assess the resilience of the Dow Jones, S&P 500, and Nasdaq indices against a complete 40 day closure of the Strait of Hormuz. The research was conducted with a forward-looking, scenario-based approach, and daily data from financial and energy markets were collected for the period from January 12, 2025 to June 5, 2026. For the analysis, after applying the Augmented Dickey–Fuller, Zivot–Andrews, and Lagrange tests, a multivariate BEKK-GARCH model was employed, and a Hormuz dummy variable was introduced into the variance equation. The results indicate that the Hormuz blockage has the greatest effect on the S&P 500 index and has increased the short-term volatility of some indices by about 30 percent. Moreover, the correlation between the oil market and global stock markets intensified during the period of tension. In the scenario analysis, three possible situations were examined: in the de-escalation scenario, stabilization of oil prices in the range of 80 to 90 dollars could lead to improvement in risk assets; in the scenario of continued restrictions with oil around 100 to 110 dollars, market volatility increases; and in the scenario of the effective closure of the strait, a surge in oil prices to 150 to 180 dollars strengthens recessionary pressure and the tendency toward safe-haven assets. The results emphasize the necessity of risk-hedging strategies.

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References

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Journal of Applied Economics Studies in Iran
Volume 15, Issue 57
May 2026
Pages 241-270

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