The 2026 Strait of Hormuz Closure: An Extended Case in Microeconomics

Supply and demand, costs, market structure and externalities, taught through one live shock to the world's oil supply.

Adam W. Stauffer · Lecture decks built; book in progress

The idea

Every tool in an introductory microeconomics course is needed to understand one event, the 2026 closure of the Strait of Hormuz. Each chapter earns its place by explaining a part of that event the previous chapter could not.

Microeconomics is usually taught one model at a time, each with its own toy example, and students rarely see the models work together. Real shocks don't arrive one model at a time. The closure moved prices, costs, market power, externalities and trade in the same weeks. This book starts with the shock, builds the machinery, then uses it on power, market failure and the border, and each chapter comes back to the strait with a sharper tool.

How each chapter works

• Reading. The news that opens the chapter.
• Puzzle and predict. A question you commit to before the tool is taught.
• Reason. The chapter's microeconomics.
• Worksheet. The arithmetic, done by hand.
• Reveal. What actually happened in the strait, and how well the prediction did.

The case is still moving, so every reveal is dated: what was known, as of when.

Contents

Draft. Titles and order will change.

Act I · The story

1. 1Supply and demand28 February 2026 · The US and Israel strike Iran, and the strait closes
2. 2Elasticity7 April 2026 · Brent peaks at $138
3. 3Perfect competition and markets1 April 2026 · The US doesn't ship through Hormuz, but it pays the price the market sets; China, the largest buyer, quietly buys less

Act II · The machinery

1. 4Production costs12 March 2026 · Brent passes $100, and costlier wells pay
2. 5Consumer and producer surplus, market efficiency17 April 2026 · The reopening headline: who gained, who paid
3. 6Why nations tradeJuly 2026 · The strait stays shut, and the oil moves around it

Act III · Power, and what it costs

One axis, from the price-taker to the monopolist: differentiation, cartels, oligopoly and monopoly, and the games the players play.

1. 7Imperfect competition20 July 2026 · The Houthis announce a Red Sea blockade
2. 8Cartels1 May 2026 · The UAE leaves OPEC, and OPEC+ still cannot set the price
3. 9Oligopolies and monopoliesTwo pipelines around the strait: a route with almost no substitutes
4. 10Game theory13 April 2026 · The US blockades Iran's ports

Act IV · The failures

1. 11Externalities14 September 2026 · The EPA drops its power-plant emissions rule
2. 12Addressing externalitiesMid-March 2026 · The strait gets an owner, and the owner sends a bill

Act V · Across the border

1. 13Economic warfareForty years of sanctions on Iran, and a tariff war that repriced Treasuries

Epilogue · What we still do not know