Iran Closing the Strait of Hormuz: Implications?

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. Iran 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. He called it a serious mistake and "economic suicide," saying it would have a disastrous impact on global energy trade.

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. The channel itself is only 3 kilometers in both directions. That makes it extremely vulnerable to attacks on ships or to disruptions of 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.

Iran borders the strait to the north, and the United Arab Emirates lies to the south. The Strait of Hormuz is the primary export channel for major oil and gas producers. Those producers include 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. Traffic must use 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. One is the Saudi East-West Pipeline to the Red Sea. Another is the pipeline from the United Arab Emirates to Fujairah in the Gulf of Oman. However, these pipelines have limited capacity. They 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. That risk follows from 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. That accounts for about 20% of global liquid petroleum consumption. It also accounts for more than a quarter of the total global seaborne oil trade.

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Oil trade

Those flows remain stable in the first half of 2025. Saudi Arabia is the largest contributor. Its exports accounted 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. The majority of it originates from Qatar, a major LNG exporter.

All of the countries along the strait are members of the Organization of Petroleum Exporting Countries (OPEC). That membership underpins their economies, which are worth hundreds of billions of dollars. Any potential disruption would not only affect oil prices. It would also affect 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. Reports show 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. That would leave 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 pass quickly through high-risk areas. That will lead to increased fuel consumption and further higher fuel costs.

Forecastsindicate 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

Practical considerations

When ships sail in dangerous areas, it can be very difficult to recruit and retain seafarers willing to navigate high-risk areas. That 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. All of that may lead to increased costs.

Ships are required to take longer routes or to choose alternative routes. That limits the number of voyages that can be completed within a given period. The result is 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. That could result in a loss of revenue on Arabian Gulf routes.

The Strait also carries a large volume of container and bulk traffic. That is more than 33 million twenty-foot equivalent units (TEUs) per year. It accounts 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 may be unable to deliver cargo on time because of the closure of the Strait of Hormuz. The same is true for cargo bound for agreed-upon destinations. Those companies could face breach of contract lawsuits and possible financial liabilities.

Such events could have a significant impact on stock prices. They could also shake investor confidence in companies that rely on the region.

Impact on Asian economies

Asian markets remain particularly vulnerable. They are the main destination for oil shipped through the Strait of Hormuz. In 2024, approximately 84% of crude oil and condensate shipped through the Strait of Hormuz went to Asia. So did 83% of liquefied natural gas (LNG).

India, Japan, China, and South Korea together accounted for 69% of total crude oil and condensate. That share moved through the Strait of Hormuz in 2024.

India imports 90% of its crude oil needs, and 40% of that comes from the Middle East. For India, 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. They surface 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. The global military presence weighs against it. Iran would also face strong opposition if it were to make such a decision.

Such a move would also alienate Iran's regional partners. Those partners include countries such as Oman and the United Arab Emirates. They 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. A blockade of the Strait of Hormuz would severely affect its economy.

As Iran's largest oil customer, China would be directly affected. That would undermine the strategic relationship between Tehran and Beijing.

Conclusion

The current situation in the Middle East involves Iran, Israel, and now the United States. It highlights the fragility of global energy security. The Strait of Hormuz is a narrow but vital passage for maritime oil and gas trade, and it remains in the spotlight. Iran's threats to close the Strait are effectively using it as a political weapon. The economic impact of closing the Strait would primarily affect Tehran.

However, even a short-term closure could lead to a sharp increase in oil prices and war insurance premiums. So could increased harassment of commercial shipping. The world is watching with great anticipation. The hope is that diplomacy will prevail over escalation, no matter how tense the situation. That would avoid a world-shaking crisis in the Strait of Hormuz.

Next steps

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