Is Iran Closing the Strait of Hormuz? What Are the Implications?
The Middle East has become a boiling pot as tensions between Israel, Iran and the United States have reached unprecedented levels. The recent US strike on Iranian nuclear facilities has triggered a series of threats from Iran, which has announced plans to close the Strait of Hormuz, a key maritime gateway for global oil and gas trade.
US Secretary of State Marco Rubio urged China to stop Iran from taking such a move because it would have a disastrous impact on global energy trade, calling it a serious mistake and “economic suicide.”
Why is the Strait of Hormuz so important? Let’s find out.
The Strait of Hormuz is a narrow waterway that connects the Persian Gulf, the Gulf of Oman and the Arabian Sea. As such, it is one of the world’s most important maritime choke points.
The Strait of Hormuz is only 33 kilometers at its narrowest point and the channel is only 3 kilometers in both directions, making it extremely vulnerable to attacks on ships or disruptions to maritime traffic. Its geographical importance is also reflected in the fact that it is the only sea route for most of the Middle East’s oil and gas exports.
Bordered by Iran to the north and the United Arab Emirates to the south, the Strait of Hormuz is the primary export channel for major oil and gas producers, including Iraq, Saudi Arabia, the United Arab Emirates, Qatar, and Kuwait. Any disruption to this channel will have far-reaching consequences for global energy markets.
Additionally, there is currently no direct alternative maritime route for ships to enter and exit the Arabian Gulf through the Strait of Hormuz. This means that if the Strait of Hormuz is closed, ships will not be able to reach ports in Saudi Arabia, Bahrain, Kuwait, Qatar and Iraq.
There are some land-based alternatives, such as the Saudi East-West Pipeline to the Red Sea or the pipeline from the United Arab Emirates to Fujairah in the Gulf of Oman. However, these pipelines have limited capacity and are not a panacea for all trade flows, especially for non-oil products.
The economic lifeline of global oil and gas trade
The Strait of Hormuz has been a focal point of geopolitical risk due to its significance in maritime trade.
In 2024, about 20 million barrels per day of crude oil and condensate will pass through the Strait of Hormuz, accounting for about 20% of global liquid petroleum consumption and more than a quarter of the total global seaborne oil trade.
Oil trade
Those flows remain stable in the first half of 2025, with Saudi Arabia being the largest contributor, with exports accounting for 38% of total crude oil flows through the strategic strait in 2024.
Additionally, one-fifth of the global liquefied natural gas (LNG) trade in 2024 is expected to pass through the strait, with the majority originating from Qatar, a major LNG exporter.
All of the countries along the strait are members of the Organization of Petroleum Exporting Countries (OPEC), which underpins their economies worth hundreds of billions of dollars. Any potential disruption would not only affect oil prices but also national budgets and development plans of these countries.
Impact on shipping companies and ship operators
War risk premiums for ships have surged amid the Iran-Israel conflict, with reports showing they have risen by more than 60% since the conflict began. For a $100 million ship, the cost of hull and machinery insurance for a single voyage would rise from $125,000 to $200,000.
Insurers could also cancel coverage if the Strait of Hormuz is declared a war zone or made impassable by naval action, leaving operators completely exposed. This applies not only to the hull and machinery but also to cargo insurance, which will increase the overall cost of cargo transportation.
Ships may also be advised to increase their speed to quickly pass through high-risk areas, which will lead to increased fuel consumption and further higher fuel costs.
Forecasts indicate that Brent crude oil prices could easily exceed $90 per barrel, even in the event of a temporary disruption. Some predict that prices could reach $120 to $150 per barrel or even $400 per barrel if the blockade persists. This could lead to inflation, weighing on the economy.
Strait of Hormuz
When ships sail in dangerous areas, it can be very difficult to recruit and retain seafarers willing to navigate high-risk areas, which can lead to higher wage requirements and increased operating costs.
Ship operators may also invest in armed guards, advanced surveillance systems, and anti-piracy and anti-missile technology, which may lead to increased costs.
As ships are required to take longer routes or choose alternative routes, the number of voyages that can be completed within a given period will be limited, resulting in a reduction in cargo capacity, even if the total number of ships remains the same.
Some shipping lines may avoid the Strait of Hormuz altogether, which could result in a loss of revenue on Arabian Gulf routes.
The Strait also carries a large volume of container and bulk traffic, more than 33 million twenty-foot equivalent units (TEUs) per year, accounting for more than 3% of global container traffic. Disruptions in the Strait could cause congestion and delays at other regional transshipment hubs.
A closure of the Strait could also have numerous legal implications. Companies that are unable to deliver cargo on time or to agreed-upon destinations due to the closure of the Strait of Hormuz could face breach of contract lawsuits and possible financial liabilities.
Such events could have a significant impact on stock prices and shake investor confidence in companies that rely on the region.
Impact on Asian economies
Asian markets remain particularly vulnerable as they are the main destination for oil shipped through the Strait of Hormuz. In 2024, approximately 84% of crude oil and condensate, and 83% of liquefied natural gas (LNG), were shipped to Asia through the Strait of Hormuz.
India, Japan, China, and South Korea together accounted for 69% of total crude oil and condensate shipped through the Strait of Hormuz in 2024.
For India, which imports 90% of its crude oil needs, 40% of which comes from the Middle East, a closure of the Strait of Hormuz could have a serious impact on domestic oil prices and trade balances.
Although India has diversified its supply sources, it is still vulnerable to a sharp spike in global oil prices.
Is it possible that the Strait of Hormuz will be completely closed?
Iran’s threats to close the Strait of Hormuz are not new; these threats are a means of deterrence and coercion in Iran’s foreign policy, especially in the face of Western aggression and sanctions. In the current situation, this threat is particularly relevant once again.
Closing the Strait of Hormuz would be Iran’s most effective retaliatory measure against the United States and its allies. It could also be used as a bargaining chip to force the international community to accept Tehran’s demands.
However, completely closing the Strait of Hormuz may not be feasible, given the global military presence and the strong opposition Iran would face if it were to make such a decision.
Such a move would also alienate Iran’s regional partners, including countries such as Oman and the United Arab Emirates that rely on the Strait of Hormuz and seek to establish relations with it.
Iran also relies on the Strait of Hormuz for its maritime trade and revenue, especially under sanctions, so a blockade of the Strait of Hormuz would severely affect its economy.
As Iran’s largest oil customer, China would be directly affected, undermining the strategic relationship between Tehran and Beijing.
Conclusion
The current situation in the Middle East, involving Iran, Israel, and now the United States, highlights the fragility of global energy security. The Strait of Hormuz, a narrow but vital passage for maritime oil and gas trade, remains in the spotlight. Iran’s threats to close the Strait are effectively using it as a political weapon, as the economic impact of closing the Strait would primarily affect Tehran.
However, even a short-term closure or increased harassment of commercial shipping could lead to a sharp increase in oil prices and war insurance premiums. The world is watching with great anticipation, hoping that no matter how tense the situation, diplomacy will prevail over escalation, thus avoiding a world-shaking crisis in the Strait of Hormuz.
