Strait of Hormuz Crisis: How the Energy Shock Is Repricing M&A Risk

When Iran effectively closed the Strait of Hormuz on February 28, 2026, it removed nearly 20 percent of global oil supply from the market overnight. Brent crude surged 39 percent within two weeks, and the ripple effects have since touched virtually every sector of the economy. For business owners, buyers, and investors navigating the M&A market, this is not simply an energy story. It is a repricing event that is reshaping how deals get valued, structured, and closed.

The Scale of the Disruption

The Strait of Hormuz is the narrow waterway between Iran and the Arabian Peninsula through which roughly 20 percent of the world's oil and a significant share of liquefied natural gas pass daily. Its effective closure following the outbreak of the Iran conflict has created what the Dallas Federal Reserve describes as the most significant oil supply disruption since the 1973 Arab oil embargo.

The numbers tell a stark story. West Texas Intermediate crude is now averaging $98 per barrel, up from the low $70s before the conflict. Brent crude briefly crossed $110. The Dallas Fed estimates this disruption could lower global real GDP growth by an annualized 2.9 percentage points during the second quarter of 2026. KKR has already responded by lowering its base case U.S. GDP forecast to 2.0 percent for 2026, down from 2.5 percent, and reducing its S&P 500 year-end target from 7,600 to 7,300.

Beyond oil, the disruption is cascading through adjacent supply chains. Approximately 20 to 30 percent of global fertilizer exports transit the strait, pushing fertilizer prices 15 to 20 percent higher. About 170 containerships with a combined capacity of 450,000 TEUs were trapped in or near the strait at the onset of the crisis. Shipping insurance premiums have spiked, and rerouting costs are adding weeks to delivery timelines.

What This Means for Deal Valuations

For business owners considering a sale or recapitalization, the Hormuz crisis introduces three distinct valuation pressures.

First, operating cost uncertainty is compressing margins. Companies with significant energy, logistics, or raw material exposure are seeing their trailing twelve-month EBITDA become a less reliable indicator of future earnings. Buyers are increasingly focused on forward-looking cost models rather than historical financials, and many are applying wider discount ranges to account for energy price volatility.

Second, supply chain resilience has become a primary valuation driver. According to recent analysis from PwC and Roland Berger, companies with diversified supplier networks are now commanding premium valuations over competitors with concentrated supply chain exposure. Buyers are asking detailed questions about supplier geography, input cost pass-through mechanisms, and the percentage of revenue exposed to Hormuz-dependent trade routes.

Third, the cost of capital is shifting. The 10-year Treasury yield jumped to 4.35 percent following the March jobs report, and energy-driven inflation is complicating the Federal Reserve's rate path. Higher financing costs make leveraged acquisitions more expensive, which can compress the price a buyer is willing to pay, particularly in the middle market where deal financing is more rate-sensitive.

Due Diligence in an Energy Crisis

The Hormuz crisis is also changing what thorough due diligence looks like. Buyers who six months ago focused primarily on revenue quality, customer concentration, and working capital are now adding a layer of geopolitical and supply chain risk assessment to their checklists.

For sellers, this means preparation for a sale now requires a clear narrative around operational resilience. A business that can demonstrate stable margins through the current disruption, or that has contractual mechanisms to adjust pricing in response to input cost changes, will be significantly more attractive than one that cannot.

How Deal Structures Are Adapting

The uncertainty created by the Hormuz crisis is also influencing how deals are structured. When buyers and sellers disagree on the near-term trajectory of operating costs or revenue, deal structures evolve to allocate risk more carefully.

Earnout provisions are becoming more common, allowing sellers to capture additional value if the business performs above a baseline that accounts for current disruption. Material adverse change (MAC) clauses are being drafted more broadly to include geopolitical supply chain events. Representations and warranties insurance is seeing increased demand as buyers seek protection against risks that are harder to diligence in a volatile environment.

For business owners, the practical takeaway is that a sale process started today will encounter a more rigorous buyer and a longer timeline. That does not mean deals are not getting done. The middle market remains active, supported by over $1.2 trillion in private equity dry powder. But the terms, structure, and diligence depth are all adjusting to a world where energy supply is no longer a background assumption.

Looking Ahead: What to Watch

The trajectory of the Hormuz crisis will continue to influence M&A conditions throughout the second quarter. There are three signals worth monitoring.

The first is diplomatic progress. A Wall Street Journal report indicated that President Trump has expressed openness to ending the conflict without reopening the strait, but no concrete timeline has emerged. Any credible ceasefire framework would likely trigger a rapid repricing of risk assets and deal activity.

The second is the March CPI print, expected on April 10. This will be the first inflation reading to fully capture the energy price surge, and it will heavily influence Federal Reserve policy expectations for the remainder of the year.

The third is private equity deployment behavior. With over $2 trillion in global dry powder and growing LP pressure to deploy aging capital, PE firms may accelerate deal activity even in uncertain conditions, particularly for businesses that demonstrate resilience to the current disruption.