By Deen Cadi, CPA, MSc | Helping High-Income Earners Save on Taxes, Build, Protect and Pass on Wealth
One month ago, in an article titled "Three Scenarios and Three Playbooks," I argued that the path of inflation, interest rates and markets over the next 12 to 18 months may depend on the Strait of Hormuz and the conflict with Iran.
In Scenario 1, calm returns, oil falls and the Federal Reserve regains room to cut rates. In Scenario 2, the conflict drags on and a slow squeeze sets in. In Scenario 3, the one I described as the scenario where all hell breaks loose, Hormuz is blocked and the conflict spreads to the routes built to bypass it. The result is a sustained energy shock: oil well above $100, surging diesel and jet fuel, reaccelerating inflation, and a Federal Reserve trapped between fighting inflation and supporting a weakening economy.
A month later, Scenario 3 is no longer theoretical.
The Picture: Hormuz closed, escape routes failing
According to the U.S. Energy Information Administration, oil flows through Hormuz fell from 21.6 million barrels per day in late 2025 to 4.9 million in the second quarter of this year, a drop of roughly 77%. The International Energy Agency has called it the largest supply disruption in the history of the oil market.
For months, the world relied on two workarounds: Saudi Arabia's East-West pipeline to the Red Sea, and the Bab al-Mandeb strait at the Red Sea's southern end. In the past ten days, both have been hit.
The pipeline had been carrying 4 million to 5 million barrels per day, roughly 4% to 5% of global supply, to the port of Yanbu. Drone attacks on September 10, which Riyadh says were launched from Iraq, forced its shutdown and damaged three pumping stations. Industry sources estimate full repairs could take five to six weeks; Saudi Arabia has given no official timeline. The effects are already reaching buyers. According to Bloomberg, Aramco has told European term customers they will receive no crude next month, and Indian reporting says term deliveries to Indian refiners have been suspended. Asian buyers, including China, are receiving partial volumes rerouted through Oman, an offset but not a replacement.
The second chokepoint is now in Houthi hands. On September 10 and 11, the Iran-backed Houthis seized the port of Mocha, the rest of Yemen's Red Sea coast and Perim Island, which sits in the middle of the Bab al-Mandeb. For now, they say only Saudi ships are barred. But in July, Reuters reported that Iran had asked the Houthis to stand ready to close the strait entirely if the United States strikes Iran's power infrastructure. That threat was made from the highlands. The Houthis are now on the water.
All of this is happening with world oil inventories already down by around one billion barrels. The question is no longer whether Hormuz is disrupted. It is whether any route around it remains open.
How the shock reaches the U.S.
Markets are responding. Brent crude came close to $110 on September 14 before closing at $105.68, and the 10-year Treasury yield has moved above 5%. Rising oil pushes inflation up while higher yields raise borrowing costs across the economy. Some analysts now warn of $120 to $140 oil.
The sharpest pressure at home is diesel. The national average reached $6.285 per gallon for the week of September 14, up more than $2.50 from a year earlier, and California averaged over $8. Localized shortages have been reported in parts of Texas, Florida, Michigan and California, and a few stations are reportedly near $10, though that is not the national picture. The verifiable concern is supply: diesel and heating oil inventories are about 13% below their five-year average.
The system has no slack to respond. U.S. refineries are running near 97% of capacity, and the recent outage at ExxonMobil's 275,000-barrel-per-day Joliet refinery showed how one failure can move prices across a region. Airlines are feeling it too: American, United and Southwest have reduced or reconsidered capacity as jet fuel climbs.
Diesel matters because it moves nearly everything: trucking, farming, construction and freight. As it rises, businesses absorb costs, then pass them on through surcharges and higher prices, or cut routes, investment and jobs. A fuel shock is both an inflation problem and a growth problem, which is exactly what makes the Federal Reserve's job so difficult.
The political pressure is building. Washington has discussed a possible diesel export ban, and social media has carried talk of a nationwide trucker shutdown. Neither is certain, but both are worth watching.
The government's cushion is also thinner. The Strategic Petroleum Reserve is near 285 million barrels, its lowest since 1982. Some argue the salt caverns that store the oil face integrity risks at these levels; that claim is disputed. The responsible conclusion is that the reserve has less flexibility, not that failure is imminent.
The 1973 oil embargo roughly quadrupled oil prices and was followed by a recession, inflation near 12% and unemployment approaching 9%. The 1979 Iranian Revolution more than doubled prices again, and the Federal Reserve's response brought back-to-back recessions and unemployment near 11% by 1982. The S&P 500 fell about 48% in 1973–1974.
Oil was not the only cause; policy errors and political instability played major roles. The lesson is not that every oil spike produces a crash. It is that a prolonged energy shock is most dangerous when inflation is already elevated and policymakers have little room to respond.
The Dashboard I'm watching
Headlines are noisy. Triggers are not. These are the indicators I am tracking, the level at which each would escalate, and what a family should do when it does.
The last row matters most. If unemployment rises and credit spreads widen, the risk shifts from inflation to recession, and the playbook shifts with it.
What high-net-worth families should do now
Red Alert does not mean selling everything or betting on oil. It means making sure a market drop never forces your hand.
1. Keep enough cash on hand. Hold 12 to 24 months of family spending, tax payments, investment commitments and business needs in cash, Treasury bills or other safe, short-term holdings, so you never have to sell at the bottom.
2. Check your debt before the bank does. Ask what happens if stocks fall 25%, rates rise another 1% to 2% and business income drops 20%. Focus on margin loans, credit lines backed by investments, adjustable-rate mortgages and real-estate loans coming due.
3. Don't keep too many eggs in one basket. Reduce reliance on high-priced growth stocks, riskier bonds and businesses hurt by fuel costs. Favor short-term bonds, inflation-protected Treasuries, essential infrastructure, profitable energy companies and strong businesses that can raise prices.
4. Make sure your tax plan is fully optimized. Harvesting losses is only one tool. The bigger opportunity is lowering your overall tax rate year after year through how your business is structured, how you pay yourself, retirement contributions, charitable giving and the timing of income. Every dollar not overpaid builds the cash cushion that absorbs a higher cost of living and lets you act when good assets go on sale. A downturn also favors Roth conversions, gifts of appreciated stock and transfers to the next generation at lower values. One caution: buying back an investment within 30 days of selling it at a loss, in any family account, can erase the tax benefit.
5. Protect your business. Map your cash for the next 13 weeks assuming higher fuel costs, slower-paying customers and lower sales. Make sure your contracts let you add fuel surcharges or raise prices if costs jump.
The Bottom Line
Scenario 3 is not yet a guaranteed recession or market crash. But Hormuz effectively closed, the Saudi pipeline down for weeks, the Houthis on the Bab al-Mandeb, oil above $100, diesel above $6, refineries near capacity, a 5% 10-year yield and an SPR at a four-decade low are not separate headlines. Together, they describe an energy system with its escape routes closing and an economy with little room to absorb the next shock.
The goal is not to predict oil prices or the next decline. It is to keep cash on hand, avoid forced sales, pay no more tax than the law requires, protect the business and be ready to act when others cannot.
Red Alert does not mean panic. It means preparation is no longer enough. It is time for disciplined execution.
This article is for educational purposes and does not constitute individualized investment, tax or legal advice.
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