Rising tensions between Iran and Israel have once again cast a shadow over global energy markets, amid mounting fears that Iran may follow through on threats to block the Strait of Hormuz — a chokepoint responsible for nearly 20 per cent of the world’s daily oil consumption.
The 33-kilometre-wide waterway between Iran and Oman handles around 21 million barrels of crude and refined petroleum products every day. It is also a key transit route for liquefied natural gas (LNG) exports from Qatar and the UAE, and a lifeline for Asian economies dependent on Gulf energy supplies.
Although the strait remains open as of June 23, the geopolitical sabre-rattling has already pushed Brent crude prices from $75 to $82 per barrel. Analysts at Goldman Sachs have warned that a prolonged disruption could send prices soaring to $120 or even $150 per barrel under worst-case scenarios.
Regional Implications
The UAE, one of the region’s top oil exporters, has taken steps to safeguard its shipments. The Abu Dhabi Crude Oil Pipeline to Fujairah — with a capacity of 1.8 million barrels per day — offers a crucial land-based alternative.
However, with national exports averaging 3.3 million b/d, any prolonged closure would still impact logistics and raise costs, especially for shipments to Asia, which receives 75 per cent of UAE oil.
Saudi Arabia, which ships 6 million b/d through the strait, could partially reroute via its East-West Pipeline, though capacity constraints remain. Qatar, the world’s top LNG exporter, faces significant exposure, while Kuwait and Iraq would likely struggle due to limited bypass options.
Shockwaves Beyond the Gulf
Though the United States imports less than five per cent of its oil via Hormuz, a spike in global oil prices would still hit American consumers hard. If Brent prices breach $100, U.S. gasoline could top $4 per gallon, adding pressure to inflation and potentially derailing consumer spending.
In Europe, where around 15 per cent of natural gas imports come from Qatar, a blockade would exacerbate ongoing energy insecurity following reductions in Russian supply. Households and manufacturers could see another wave of inflation, potentially stalling economic recovery.
Asia, however, is the most exposed. China receives nearly half its crude via the strait, while India, Japan, and South Korea depend heavily on Gulf energy flows. A closure would force tankers to reroute around Africa’s Cape of Good Hope, escalating shipping costs and risking widespread fuel shortages and economic disruptions.
Iran’s Calculus
While Iran possesses the military capability to disrupt the strait using mines, missiles, and maritime harassment — as seen during the 1980s “Tanker War” — a full closure remains unlikely.
Iran exports 2.5 million b/d through the same strait, including 1.5 million b/d to China, its key ally. Experts warn that a blockade could backfire economically and provoke a military response.
Iranian state media recently claimed that a parliamentary bill approving the strait’s closure had been passed. However, any final decision lies with Iran’s Supreme National Security Council.
Military Buildup and Market Volatility
In response to the threats, the U.S. has redirected the USS Nimitz Carrier Strike Group from the South China Sea to the Middle East, joining the USS Carl Vinson in the Arabian Sea. The move signals Washington’s resolve to secure maritime trade routes.
Shell CEO Wael Sawan cautioned that “any escalation could disrupt global trade significantly,” as industry and governments brace for a volatile summer in global energy markets.