Strait of Hormuz: Why Your Gas Costs More Than Pizza
The sea’s worst traffic jam, and how it reaches all the way into your investment accounts.
Gas and Pizza
The best gas station pizza in the world is Casey’s. That’s an objective fact. Also a fact, is that a slice of Casey’s pizza costs between $2.99 and $3.50 depending on location and specials. Knowing the gold they have in their ovens, Casey’s has traditionally used cheaper, low margin gas prices as a way to lure people in, then sell them the more expensive, higher-margin pizza.
The problem is that it is cheaper to buy a slice of pizza at Casey’s than it is to buy a gallon of gas. (Cue disc screech)
The national average for a gallon of gas peaked near $4.55 in late May, up from under $3 in February, and it still sits around $4.24 today. Depending on where you are, it is possible to see prices as high as $5. This means that it is conceivable to buy 20 slices of Casey’s pizza at the same price as it is to fill up your car. One, if you’re going to buy 20 slices of pizza, the better deal is buying a whole pizza (this does not constitute financial advice). Two, something is seriously wrong with the ever-pervasive petroleum market.
With prices this high, many would expect inflation to be through the roof and the market in a recession. Now, however, only half of this is true. Yes, inflation is up and energy prices are higher than we’ve seen in a long time. Yet, the market is near all-time highs. What gives?
This paradox leads us to the question, “How?”
It begins with the Strait of Hormuz. The strait is a channel between Iran and Oman barely 20 miles wide. Since early March it has been effectively closed to commercial shipping, and because roughly a fifth of the world's oil and a fifth of its seaborne natural gas pass through it every day, closing it sent a shock through the entire global economy. The rest of this blog is the story of the petroleum market, how that shock travels, and what it means for us as investors.
A Short History of Oil, and Why It Touches Everything
For most of human history, oil was considered a nuisance. It seeped up out of the ground, fouled farmland, and had almost no use. Then in 1859 a man named Edwin Drake drilled a well in Pennsylvania, and within a single generation that black liquid had become the most valuable substance on earth. John D. Rockefeller built the first great American fortune refining it. By the time Daniel Yergin picks up the story in his history of the industry, The Prize, oil had stopped being merely a business and become a matter of national survival.
The turning point he marks comes just before the First World War, when Winston Churchill converted the British navy from coal, which Britain had in abundance, to oil, which it did not. The ships were faster, but the most powerful fleet in the world was now tethered to oil pumped thousands of miles away in Persia (now called Iran). From that moment forward, oil was never only a commodity. It was power, and the map of where the oil sat became the map that great powers fought over for the next hundred years.
Today, oil is not just the gas in your tank. Look around whatever room you are in. The paint on the walls, the plastic in your phone case, the packaging your groceries came in, the synthetic fibers in your clothes, the asphalt you drove on, the lubricants in your car, even the fertilizer that grew the food on your plate. Almost all of it begins as petroleum or as a chemical refined from it. We do not so much use oil as live inside of it. That is the reason an oil shock is never only an oil shock. When the price of a barrel moves, the cost of an astonishing share of ordinary life moves with it, most of it far away from the gas pump.
Mr. Gorbachev, tear down this blockade!
Oddly enough, we have been in this situation before.
In the 1980s, Iran and Iraq fought a long and grinding war. Unable to break each other on land, both sides turned to the sea and began attacking oil tankers, each trying to strangle the revenue that funded the other's war machine. Before long, neutral ships with no stake in the fight were burning too. The press came to call it the Tanker War.
Over the next fourteen months the Navy fought a shadow war against mines and swarms of small attack boats. At the height of it, ten Western navies and eight regional ones were crowded into those narrow waters at the same time. An Iraqi missile, fired in the confusion of the wider war, struck the frigate USS Stark and killed thirty-seven American sailors. A year later the USS Samuel B. Roberts hit an Iranian mine and very nearly sank, which prompted the United States to strike back in what became the largest American naval surface battle since the Second World War. None of this made the front page for long, but men died in that water to keep the oil moving.
Through all of it, Iran threatened to close the Strait of Hormuz, but it never actually did. Iran's own economy survived by shipping its oil out through that very strait, so to close it would have been to strangle itself. The lock and the key sat in the same hand. The Tanker War finally ended with a ceasefire in 1988, the convoys stood down, and the oil flowed again.
That history gives you two lessons. The first is steadying: these shocks are violent, and they end. The second is sobering: they do not end on a schedule, and this time Iran has effectively closed the strait.
The Economics: Why Prices Move the Way They Do
So back to our question. America produces more oil than any country in history. Why are we paying more for gas than pizza?
The reason is that we are actually talking about two different commodities that behave in opposite ways.
Oil is a single global market. A barrel is a barrel whether it is pumped in Texas or Saudi Arabia, and it trades at a single world price. When a fifth of the world’s supply gets stuck behind a blockade, that price jumps for everyone at once, including here. The blockade cut off the barrels Europe and Asia normally rely on, so buyers there scrambled for whatever oil they could find and bid the price up. American producers can sell into that higher world price, so they ship their oil wherever pays most. To keep barrels here at home, American buyers have to match what the rest of the world is willing to pay. Our record production does not buy us a discount, because there is no separate American price to protect.
Natural gas is the opposite. It is expensive and difficult to move across oceans, which keeps it stubbornly regional. The United States has plenty of its own and cannot ship much more abroad without a lot of time and capital being invested in LNG infrastructure. So, when Hormuz closed, the results split sharply. The U.S. natural gas benchmark actually fell about 9 percent, while Europe's rose 35 percent and Asia's jumped 51 percent.
The Investing Side: What It Does to Your Accounts
This is where it reaches your statements, and it does not land evenly.
A company like ExxonMobil tends to benefit, because it pumps and sells the very thing that just became more valuable. A company like Sherwin-Williams tends to suffer. Paint is petroleum. Its resins and solvents come from the same barrel that just spiked, so the cost of making a can of paint climbs while the price it can charge does not. The same event that fattens one company's margin quietly thins another's.
The good news is if you own a diversified portfolio, you almost certainly own both an Exxon and a Sherwin-Williams (or companies on both sides of the balance sheet) without ever having thought about it. Diversification means that when one part of your portfolio is hurt by an event, another part is often helped.
Two questions worth sitting with:
Do you know how your portfolio behaves when energy spikes? Some of what you own is an Exxon, and some is a Sherwin-Williams. Knowing which is which is most of the work.
Could you hold steady through six months of headlines like these? A plan you can stay invested through is worth far more than a clever one you abandon at the worst possible moment.
The events in the Gulf will hopefully resolve, as the Tanker War did before them. The only real certainty is that there will be a next one. That does not mean we should be afraid, but rather have fortitude and a strategy that keep us sailing in rough and calm seas alike. If these headlines have you wondering how exposed your own accounts really are, we would welcome a conversation about it.
Companies mentioned are for informational purposes only and should not be construed as investment advice, a recommendation or solicitation.
Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.
Sources
Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon & Schuster, 1991.
"The Strait of Hormuz in 8 Charts." Center for Strategic and International Studies, April 2026.
"The Tanker War: How History Is Repeating Itself on the Strait of Hormuz." CNN, March 22, 2026.
"International LNG Prices Rise Amid Strait of Hormuz Closure." U.S. Energy Information Administration, April 28, 2026.
"State Gas Price Averages." AAA, June 2026.