The Middle East has become a boiling cauldron with tensions between Israel, Iran and the U.S reaching new highs. Latest U.S strikes on Iran’s nuclear facilities have ignited a wave of threats from Tehran, which states its plans to close the Strait of Hormuz, an important maritime gateway for global oil and gas trade.
U.S Secretary of State Marco Rubio has urged China to prevent Iran from taking such a step, as it would be catastrophic for the global energy trade, calling it a terrible mistake and ‘economic suicide’.
However, why is the Hormuz Strait so important? Let us find out.
The Hormuz Strait is a narrow waterway that connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. Hence, it is one of the most significant maritime chokepoints in the world.
It is only 33 km wide at its narrowest point, and shipping lanes shrink to just 3 km in each direction, making it easy to attack ships or block maritime traffic. Its geographical significance can also be ascertained from the fact that it is the only sea route used for exporting the vast majority of global oil and natural gas from the Middle East.
It is surrounded by Iran to the north and the UAE to the south, making it the principal export route for major oil and gas producers, including Iraq, Saudi Arabia, the UAE, Qatar, and Kuwait. Any disruption to this route will have ripple effects across the world energy market.
Also, there is no direct sea route alternative to the Strait of Hormuz for ships entering or exiting the Persian Gulf. This means that if the strait is blocked, then ships cannot reach ports in Saudi Arabia, Bahrain, Kuwait, Qatar and Iraq.
Some land-based alternatives exist, such as Saudi Arabia’s East-West Pipeline to the Red Sea or pipelines from the UAE to Fujairah on the Gulf of Oman, but they have limited capacity and are not a solution for all the trade flows, especially for cargo other than oil.
Economic Lifeline For World Oil & Gas Trade
The Strait of Hormuz has remained a focal point of geopolitical risk because of its importance in maritime trade.
In 2024, around 20 million barrels per day of crude oil and condensate passed through the Hormuz Strait, amounting to about 20% of global petroleum liquids consumption and over a quarter of total global seaborne oil trade.
In the first half of 2025, these flows remained consistent with Saudi Arabia being the biggest contributor, with its exports making up 38% of the total crude flows through the strategic strait in 2024.
Additionally, one-fifth of the global LNG natural gas trade also passed through the Strait in 2024, mainly from Qatar, a major exporter of LNG.
Nations bordering it are all OPEC members and depend on the Strait for their economic sustenance, amounting to hundreds of billions of dollars. A potential disruption would not only affect oil prices but also the national budgets and development plans of these countries.
Impact on Shipping Companies & Ship Operators
War risk premiums for vessels have already risen amidst the Israel-Iran conflict, with reports showing increases of more than 60% since the beginning of the conflict. For a 100 million dollar vessel, this would mean a rise from $125,000 to $200,000 for hull and machinery insurance alone for a single transit.
If the Hormuz Strait is declared a war zone or becomes impassable due to naval action, then insurers might also withdraw coverage, and operators would be completely exposed. This applies not just to hull and machinery but also to cargo insurance, which would push the overall costs of transporting goods.
Ships might also be advised to increase their speed to pass through the high-risk area quickly, burning more fuel, leading to increased fuel costs as well.
Predictions suggest that Brent crude prices can easily surpass $90 per barrel with even a temporary disruption, with some stating prices could reach $120 to $150 per barrel or even $400 per barrel in a sustained blockade scenario. This could lead to inflation and strain economies.
When ships operate in dangerous regions, recruiting and retaining seafarers willing to sail through the high-risk zones could be challenging, leading to higher wage demands and increased operational costs.
Ship operators might also invest in hiring armed guards, advanced surveillance systems and investing in anti-piracy and anti-missile technologies, which could drive up costs.
As ships take longer or alternate routes, few trips can be completed in a given period, reducing shipping capacity, even if the total number of ships remains the same.
Some shipping companies might avoid the Strait entirely, which could result in a loss of revenue from routes serving the Persian Gulf.
The Strait also deals with significant container and bulk cargo traffic, supporting more than 33 million TEU annually, which is over 3% of global container traffic. Disruptions could cause congestion and delays at alternative regional transhipment hubs.
The legal implications of a potential closure could also be many. Companies unable to deliver cargo on time or to the agreed destination due to the closure of the Hormuz Strait could face claims for breach of contract, leading to financial liabilities.
Such an event could have a drastic impact on stock prices and affect overall investor confidence in companies reliant on the region.
Impact on Asian Economies
Asian markets remain especially susceptible as they are the primary destination for oil flowing through the Strait. In 2024, around 84% of crude oil and condensate and 83% of LNG passing through the Hormuz went to Asia.
India, Japan, China and South Korea accounted for a combined 69% of all Hormuz Crude oil and condensate flows in 2024.
For India, which imports 90% of its crude oil needs, with 40% coming via the Hormuz Strait from the Middle East, a potential closure could have profound effects on domestic oil prices and the nation’s trade balance.
Though India has diversified its sources, it does remain susceptible to global oil price spikes.
Is a Full Blockade of the Hormuz Strait Even Possible?
Iran’s threats to close the Hormuz Strait are not new; rather, they serve as a deterrent and a coercive tool in its foreign policy, especially against Western aggression and sanctions. In the current climate, this threat has garnered renewed weight.
Closing the Strait would be its most impactful act of retaliation against the U.S. and its allies and could also be used to create leverage in negotiations, forcing the international community to accept Tehran’s demands.
However, a complete closure might not be possible, given the global military action and backlash Iran might have to face if it takes such a decision.
Such an act would also alienate regional partners, including nations like Oman and the UAE, which depend on the strait and with whom Iran has been trying to build ties.
Even Iran is dependent on the Strait for its maritime trade and consequently revenue, especially given existing sanctions, so a closure would hit its economy hard.
China, which is Iran’s biggest oil customer, would be directly affected, and this would undermine Tehran and Beijing’s strategic relationship.
Conclusion
The present situation in the Middle East, involving Iran, Israel and now the U.S, underscores the fragility of global energy security.
The Strait of Hormuz, a narrow yet vital artery of maritime oil and gas trade, remains the focal point. While Iran threatens to close the gateway, it is using it as a political weapon, as the economic impact of a closure would affect Tehran first.
However, even a short-term closure or increased harassment of commercial shipping could lead to an increase in oil prices and war insurance premiums. The world watches with bated breath in the hopes that diplomacy, though strained, can prevail over escalation, preventing the crisis in the Strait of Hormuz that would send shockwaves across the entire world.
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