Investing.com -- An extended closure of the Strait of Hormuz due to the Iran War could push U.S. headline inflation above 4% by year-end, according to research published Tuesday by the Dallas Federal Reserve Bank.

The working paper examined several scenarios for the strait, which handles 20% of global oil trade and has been effectively closed for five weeks. A one-quarter closure could increase inflation in March by 5.2 percentage points on an annualized basis, though the effect would quickly fade, leaving fourth-quarter inflation elevated by 0.35 percentage points.

A three-quarter closure would drive oil prices from the current $115 per barrel to $167 and push up fourth-quarter inflation by as much as 1.8 percentage points, the researchers found.

Year-over-year inflation measured by the personal consumption expenditure price index stood at 2.8% in January. The Federal Reserve targets 2%.

Core inflation, which excludes food and energy prices, would rise by 0.18 percentage points under a one-quarter closure and about 0.49 percentage points if the closure lasts three quarters. Core inflation measured 3.1% in January.

The research found limited impact on inflation expectations. One-year expectations could rise as much as 0.8 percentage points, while five- to 10-year expectations would increase by 0.09 percentage points at most.

"There is little evidence of higher gasoline prices being passed through to core inflation or long-run inflation expectations becoming unanchored," Dallas Fed researchers wrote.

The findings come as the Middle East conflict appeared on the brink of escalation Tuesday after President Donald Trump called on Iran to open the Strait of Hormuz or face destruction of its power plants and bridges.