What Will Happen to the Strait Crucial for Global Oil Supply?

The Strait of Hormuz is a vital maritime corridor between Oman and Iran, linking the Persian Gulf with the Gulf of Oman and the Arabian Sea. The U.S. Energy Information Administration (EIA) describes it as “the world’s most important oil transit chokepoint.”

At its narrowest point, the strait is just 33 kilometers wide, with shipping lanes only two kilometers wide in each direction, making navigation congested and potentially hazardous.

Large quantities of crude oil extracted from oil fields across the Persian Gulf, primarily by OPEC members such as Saudi Arabia, the United Arab Emirates (UAE), Kuwait, and Iraq, pass through this strait for global distribution.

According to Vortex, a consulting firm that analyzes the energy and transport markets, an estimated 20 million barrels of crude oil, condensates, and fuel pass through the strait daily. Qatar, one of the world’s largest producers of liquefied natural gas (LNG), also relies heavily on this route for its exports.

What Is the Current Situation in the Strait?

The conflict between Israel and Iran has once again raised concerns about security in this critical sea lane.

Iran has previously threatened to close the Strait of Hormuz in response to Western pressure. However, since the latest escalation, there have been no major attacks on commercial vessels in the region.

Still, shipping companies are increasingly cautious. Some have ramped up security measures, while others have canceled routes through the area, according to the Associated Press.

Maritime sources told Reuters that electronic jamming of commercial ship navigation systems has significantly increased in recent days in and around the Strait of Hormuz and the wider Persian Gulf. This interference affects vessels transiting the region.

With no resolution to the conflict in sight, markets remain tense. Any blockade or disruption in oil traffic through the strait could cause a sharp spike in crude oil prices, severely impacting energy-importing nations, especially in Asia.

Meanwhile, freight rates for tankers transporting crude and refined oil from the region have surged in recent days. The cost of shipping fuel from the Middle East to East Asia rose by nearly 20% over three days, ending Monday, according to Bloomberg, citing Baltic Exchange data. Rates to East Africa jumped by more than 40%.

Who Would Be Most Affected by a Supply Disruption?

According to EIA estimates, as much as 82% of crude oil and other petroleum products that transit the Strait of Hormuz are destined for Asian markets.

China, India, Japan, and South Korea are the primary recipients, together accounting for nearly 70% of the total crude oil and condensate flow through the strait. Consequently, any supply disruption would hit Asian economies the hardest.

How Would a Closure Impact Iran and the Gulf States?

If Iran were to attempt to close the Strait of Hormuz, it could provoke U.S. military intervention. The U.S. Navy’s Fifth Fleet, based in nearby Bahrain, is responsible for securing commercial shipping in the region.

Any Iranian move to disrupt oil flows could harm its improving relations with Gulf Arab nations, such as Saudi Arabia and the UAE. These countries, which have criticized Israel’s attacks on Iran, might turn against Tehran if their oil exports are threatened.

Furthermore, Iran itself relies on the Strait to export its oil. Shutting it down would be self-defeating, experts note.

“Closing the Strait of Hormuz would be counterproductive for Iran’s relations with its only oil buyer, China. Iran’s economy depends heavily on the free movement of goods and vessels through this passage, as all its oil exports are transported by sea,” Reuters quotes JP Morgan analysts Natasha Kaneva, Pratika Kedia, and Ljuba Savinova.

Are There Alternatives to the Strait?

Gulf countries like Saudi Arabia and the UAE have been developing alternative routes to bypass the Strait of Hormuz.

For instance, Saudi Arabia operates an East-West pipeline with a capacity of five million barrels per day. The UAE has built a pipeline that connects its onshore oil fields to the export terminal at Fujairah, located on the Gulf of Oman.

The EIA estimates that if the Strait of Hormuz were blocked, roughly 2.6 million barrels of crude oil per day could still be transported via these alternative routes.