The High Stakes of Closing the Strait of Hormuz: Is the World Ready for an Oil Shock?

What if Iran shut down the Strait of Hormuz? This key maritime corridor, through which 20% of global oil and gas trades, could face blockade as tensions rise following US strikes on Iranian nuclear sites. Closing this shipping lane would create devastating effects on the global economy including soaring oil prices, inflated costs for goods, and serious impacts on large economies such as China, India, and Japan.

The Strait of Hormuz is only about 31 miles wide at its entrance, making it a critical choke point for oil transport from the Gulf, predominantly utilized by major producers like Saudi Arabia, Iraq, and UAE. In 2023, an estimated 20 million barrels of oil passed through daily, translating to nearly $600 billion annually. Former MI6 chief Sir Alex Younger warns that a blockade would create economic turmoil, with markets reacting negatively to the disruption.

Asia heavily relies on this route, with 82% of crude oil and condensates transported there destined for Asian markets, including 90% of Iranian oil sold to China. Disruptions could inflate production costs, feeding into global inflation. India and Japan are particularly vulnerable, receiving substantial portions of their oil and gas imports through the Strait.

Iran has the capability to make any blockade a reality, potentially using mines, and small naval maneuvers. However, experts believe that while Iran could temporarily disrupt traffic, US military interventions could counteract this quickly, reminiscent of the tanker wars during the 1980s.

Despite past threats, concrete action to close the Strait has yet to be realized. Recent motions in Iran’s parliament suggest serious contemplation, yet analysts expose Iran’s risks in pursuing such a blockade, arguing it would isolate them from their Arab neighbors and anger China.

Alternative routes are already in development, with Saudi Arabia and the UAE paving the way for reduced dependency on the strait, hinting at the geopolitical shifts that may arise from growing tension in the region.

The future of the Strait of Hormuz is uncertain, as global economies watch cautiously, pondering what a closure would mean for oil security and stability across international markets.