The ongoing war between Israel and Iran has sparked concerns regarding a potential Iranian retaliation aimed at closing the Strait of Hormuz, an essential oil chokepoint through which a significant amount of the world's crude oil is transported daily. This strategic waterway runs between Oman and Iran and serves as the passage for approximately 20 million barrels of oil per day, accounting for nearly 20% of global oil consumption as of 2024.
Recent military actions, specifically the U.S. military's strike against three sites in Iran, have raised questions about how Iran might respond militarily, particularly given Tehran's formidable naval capabilities, which include fast-attack boats and thousands of naval mines. Iran also possesses missiles that could damage the strait's accessibility, especially from its main naval base in Bandar Abbas, located on the northern coast of the waterway.
The Strait of Hormuz is notably narrow—only 33 kilometers (21 miles) at its thinnest point—but sufficiently deep and wide to accommodate the largest crude oil tankers in the world. The oil that transits through this strategic point primarily originates from major oil-producing countries in the region, including Saudi Arabia, the United Arab Emirates, Iraq, Iran, Kuwait, and Bahrain, while significant liquefied natural gas supplies come from Qatar.
Significantly, most oil that travels through the strait lacks alternative overland routes because existing pipelines, such as Saudi Arabia's East-West pipeline, do not offer enough capacity for such volumes. According to the U.S. Energy Information Administration, “Most volumes that transit the strait have no alternative means of exiting the region.” Should Iran decide to close the strait, analysts predict a temporary surge in oil prices, with estimates suggesting they could rise as high as $120-$130 per barrel, resulting in a short-term inflationary shock to the global economy.
The ramifications of a closure would be particularly acute for Asia, as 84% of the oil moving through the strait is destined for Asian markets, including major importers like China, India, Japan, and South Korea. While China sources 47% of its seaborne oil from the Gulf and maintains an inventory of approximately 1.1 billion barrels—enough for about two and a half months of supply—other countries in the region would face significant disruptions.
Importantly, Iran itself has compelling reasons to refrain from blocking the strait. Such action would effectively halt its own oil exports, significantly affecting its current relations with China, its largest trading partner and sole oil customer. Moreover, blocking the strait would infringe upon Oman's territorial waters, straining diplomatic relations with a nation that has historically acted as a mediator between the U.S. and Iran.
In the event of a blockade, it is likely that the U.S. would intervene to re-establish passage through the strait. Historical precedents exist, such as during the Iran-Iraq War in the 1980s when U.S. naval vessels escorted Kuwaiti oil tankers to safeguard them from Iranian threats. Industry experts, including Kpler's head of crude oil analysis, Homayoun Falakshahi, assert that any substantial price increase would likely be short-lived, given that the U.S. Navy would swiftly act to keep the strait open.
Analysts indicate that U.S. military action, likely supported by European allies and potentially even tacitly endorsed by China, would lead to a quick restoration of navigational freedom through the strait. The Iranian navy, under such circumstances, would likely face significant losses in a matter of hours or days.
