Closing Strait of Hormuz could backfire on Iran as its a vital route for oil

Dubai: The war between Israel and Iran has raised concerns that Iran could retaliate by trying to close the Strait of Hormuz, the world’s most important oil chokepoint due to the large volumes of crude that pass through it every day.

The US military’s strike on three sites in Iran over the weekend has raised questions about how its military might respond.

The Strait of Hormuz is between Oman and Iran, which boasts a fleet of fast-attack boats and thousands of naval mines as well as missiles that it could use to make the strait impassable, at least for a time.

Iran’s main naval base at Bandar Abbas is on the north coast of the strait. It could also fire missiles from its long Persian Gulf shore, as its allies, Yemen’s Houthi rebels, have done in the Red Sea.

About 20 million barrels of oil per day, or around 20% of the world’s oil consumption, passed through the strait in 2024. Most of that oil goes to Asia.

Here is a look at the waterway and its impact on the global economy:

The strait connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. It’s only 33 kilometers (21 miles) wide at its narrowest point, but deep enough and wide enough to handle the world’s largest crude oil tankers. Oil that passes through the strait comes from Saudi Arabia, the United Arab Emirates, Iraq, Iran, Kuwait, and Bahrain, while major supplies of liquefied natural gas come from Qatar. At its narrowest point, the sea lanes for tankers lie in Omani waters, and before and after that cross into Iranian territory.

While some global oil chokepoints can be circumvented by taking longer routes that simply add costs, that’s not an option for most of the oil moving through the strait.

That’s because the pipelines that could be used to carry the oil on land, such as Saudi Arabia’s East-West pipeline, they don’t have nearly enough capacity.

“Most volumes that transit the strait have no alternative means of exiting the region,” according to the US Energy Information Administration.

Closing the Strait of Hormuz would send oil prices massively higher — at least at first

If Iran blocked the strait, oil prices could shoot as high as $120-$130 per barrel, at least temporarily, said Homayoun Falakshahi, head of crude oil analyst at Kpler, in an online webinar Sunday.That would deal an inflationary shock to the global economy — if it lasted. Analysts think it wouldn’t.

Asia would be directly impacted because 84% of the oil moving through the strait is headed for Asia; top destinations are China, India, Japan and South Korea.