(Not So) Fun Fact: Due to higher energy prices stemming from the U.S.-Iran conflict, U.S. consumers have paid an estimated $69.3 billion – or about $530 per household – in additional costs for gasoline.

The Little Strait That Couldn’t

What’s Happening: Despite the ceasefire announced in June, the U.S.-Iran conflict has again flared up after Iranian missiles struck ships in the Strait of Hormuz and the United States launched multiple strikes on Iran. In the past week, President Trump notified Congress that the United States is in a new war with Iran, allowing U.S. military action without congressional approval for 60 days, even after Congress cast nonbinding votes to end the conflict last month. The progress made toward the end of June now appears to be largely reversed as traffic through the Strait of Hormuz has fallen to pre-ceasefire levels, U.S. sanctions on Iranian oil have been reinstated, the U.S. blockade is back in effect, and oil prices have spiked. Additionally, the president briefly proposed a 20-percent fee on all cargo going through the strait to reimburse the United States for maintaining security in the waterway. This proposal has since been dropped in exchange for Gulf states following through on trade and investment deals struck with the Trump Administration.

Why It Matters: The renewed U.S.-Iran conflict has increased the risks tankers and cargo ships face when attempting to transit the Strait of Hormuz, effectively closing the vital passageway used by 20 percent of the world’s oil shipments. This week, traffic through the strait dropped to a one-month low and has declined further since Iranian and U.S. strikes began last week. As Figure 1 displays, transits through the strait peaked around the time of the U.S.-Iran ceasefire, reaching flows between 40–60 percent of pre-conflict levels. As of July 12, transits were at roughly 17 percent of normal levels and are likely to continue to drop, potentially to as low as the 3-6 percent range seen during most of the conflict. The resumption of hostilities will reduce the ability of insurance companies to lower rates, will continue to put upward pressure on shipping costs, and has driven U.S. average gas prices up by 2.5 percent in one week. Global shipping costs continue to soar as displayed by the World Container Index – a measure of freight rates. From the end of February to mid-June, the cost per 40-foot container more than doubled from $1,900 to $3,970 and has since hit a 2-year high of $4,640 in the aftermath of renewed conflict with Iran.

Recall that the disruption of the strait for the past few months has already curbed global growth expectations, raised inflation risks, and cost U.S. consumers around $69.3 billion in higher gasoline costs. Overall, the conflict has cost U.S. taxpayers approximately $132 billion and, of course, costs will continue to climb. The International Monetary Fund warned that growth could dip to between 2–2.5 percent, with inflation hitting 5.4–5.8 percent given protracted supply shocks from the Middle East. Fortunately, the United States has avoided the worst of these forecasts thanks to its relative economic resilience, domestic energy production, and the fact that global oil prices have not remained elevated above $100 a barrel. Nations reliant on energy from the Gulf region have not been so lucky, with 58 countries introducing emergency measures, energy-saving campaigns, or other policies to reduce the impact of energy shortages.

Looking Ahead: Predicting when the conflict may end is a fool’s errand as a temporary ceasefire or a major escalation could occur at any moment. As of now, there are no signs that a renewed ceasefire will soon be struck between the United States and Iran. The Iranian Revolutionary Guard recently stated it would continue to endanger the Strait of Hormuz as long as U.S. military strikes continue while also threatening to expand its attacks to other routes used to export oil and gas. This means that Red Sea shipping lines and pipelines located near Iran may be put in jeopardy, further escalating the global energy crisis in the future. The Houthis in Yemen – a group linked to the Iranian regime – recently launched missiles into Saudi Arabia, marking the first major attack since 2022 and signaling that Saudi energy infrastructure may become a target. Meanwhile, President Trump has threatened to strike Iranian power plants, bridges, and “energy targets” if the Iranians refuse to return to the negotiating table.

In Other News

A New Brazil Tariff: Late last night, the United States Trade Representative (USTR) announced that it will impose a 25-percent tariff on a wide swath of imports from Brazil. This comes as USTR’s final action relating to the Section 301 investigation into “Brazil’s Unreasonable Acts, Policies, and Practices,” which was first initiated on July 15, 2025. Previous American Action Forum research estimated that a 25-percent tariff would impact close to $12 billion in imports, resulting in approximately $1.5 billion in annual tariff costs for U.S. consumers and businesses. Ostensibly, this Section 301 targets Brazil’s unfair trade practices ranging from preferential tariffs to the digital trade environment; it may also enhance the administration’s negotiating power, rebuilding the previous 40-percent International Emergency Economic Powers Act tariff that targeted the country and the actions of its President Lula. Secretary of State Rubio claimed shortly after USTR’s announcement that this tariff is due to Brazilian President Lula putting “his own ego ahead of making a deal for the welfare of the Brazilian people.” Lula has since condemned the tariff decision, pointing to the U.S. trade surplus with Brazil and pledging a response.

A Second Round of Front-loading: A noticeable uptick in U.S. imports compared to last year suggests that U.S. businesses are beginning to stock products ahead of impending Section 301 tariffs, a process known as “front-loading.” This phenomenon was seen in 2025 in the months leading up to “Liberation Day” as firms were more willing to import their goods ahead of schedule to avoid exorbitantly high tariff rates. Import volumes at U.S. ports have hit a record high in July, reaching levels last seen in 2022 when the economy surged back to life following the COVID-19 pandemic. Imports have increased by an estimated 15 percent in May, 19 percent in June, and 3 percent in July compared to last year. On July 24, the current Section 122 tariff regime is set to expire, opening the way for a new Section 301 tariff regime to be implemented shortly after. Section 301 tariffs will be slightly higher than Section 122, which helps to explain part of the increase in U.S. imports alongside general tariff uncertainty resulting from the various investigations that may result in tariffs down the road. Front-loading is expected to subside after July, with estimated import volumes dropping nearly 5 percent in August and 6 percent in September when compared to 2025. The notable rise in import volumes has contributed to increased container shipping rates, particularly on the Shanghai to Los Angeles and Shanghai to New York routes.

The Race for Tariff Exemptions: Last month, USTR made a determination in its Forced Labor Section 301 Investigation, finding that all 60 economies under investigation either failed to effectively prohibit forced labor practices or failed to prohibit the importation of goods produced with forced labor. USTR proposed additional tariffs of 10 percent on products from economies with partial forced labor import bans and tariffs of 12.5 percent on products from economies that failed to impose or effectively enforce any prohibition on forced labor imports. A public hearing took place from July 7–9, with multiple countries urging the United States to reconsider its findings and exempt them from the proposed tariffs. Representatives from countries under investigation argued that USTR had misinterpreted national laws and regulations addressing forced labor. For example, South Africa cited its ratification of key International Labor Organization conventions prohibiting forced labor and domestic legislation authorizing the block on imports produced with forced labor as evidence of a strong legal framework.

Many countries also argued that they had strengthened their forced labor policies since USTR launched its investigation. Canada argued that it has “established a robust framework to prevent goods produced with forced labor from entering the Canadian market, while continuing to strengthen its enforcement tools and activities.” It also pointed to Bill C-35, introduced on June 12, 2026, which would strengthen Canada’s ability to identify, intercept, and prohibit goods linked to forced labor at the border. Cambodia testified that the country took similar action by issuing an interministerial proclamation on July 1, 2026, prohibiting the import, use, or circulation of goods produced with forced labor and establishing strict inspection protocols. The measure appeared to be a direct attempt to avoid the proposed Section 301 duties. USTR must now review the hearing testimony, along with more than 1,500 written comments, before issuing its final determination.

Figure 1: Figure 1: Strait of Hormuz Transit Calls by Number of Ships (Through July 12, 2026)

Source: International Monetary Fund, University of Oxford