Israel-Iran crisis: How vital is the Strait of Hormuz for oil market?
The flare-up of tensions between Israel and Iran has reignited concerns over the security of the Strait of Hormuz, a vital artery for the global energy market.
This narrow stretch of water, just 29 nautical miles wide at its tightest point, funnels nearly a third of the world's seaborne oil and a fifth of global LNG.
The U.S. Energy Information Administration (EIA) calls it the "world's most important oil chokepoint," underlining the strategic importance of the passage that links the Persian Gulf with the Gulf of Oman and the Arabian Sea.
Investors and analysts are weighing the implications of a potential disruption in this narrow but critical waterway. What happens if the Strait of Hormuz is suddenly sealed off?
Following Israeli attacks on Iran, Iranian officials have raised the spectre of closing the Strait—triggering a sharp surge in crude prices.
According to the International Energy Agency (IEA), around 20 million barrels per day (mb/d) of crude oil and refined products passed through the Strait of Hormuz in 2023, representing nearly 30% of total global oil trade.
Most of this volume—around 70%—was bound for Asia, with China, India and Japan among the largest recipients.
While alternative pipeline infrastructure exists, it is limited. The IEA estimates that only 4.2 mb/d of crude oil can be rerouted via overland routes, such as Saudi Arabia's East-West pipeline to the Red Sea and the UAE's Abu Dhabi Crude Oil Pipeline to Fujairah. This capacity represents barely one quarter of the typical daily volume transiting the Strait.
'Any prolonged crisis in the Strait of Hormuz would not only disrupt shipments from key Gulf producers—Saudi Arabia, the UAE, Kuwait, Iraq and Qatar—but also make inaccessible the majority of the world's spare production capacity, which is concentrated in the Persian Gulf,' the IEA warned in a report.
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LNG markets are even more exposed to potential disruptions. All LNG exports from Qatar—the world's second-largest LNG exporter—and the UAE must pass through the Strait. The IEA reports that 90 billion cubic metres (bcm) of LNG transited the Strait in the first ten months of 2023, equal to 20% of global LNG trade.
With no viable alternative routes for LNG exports from Qatar or the UAE, any maritime closure would severely tighten global supply. Around 80% of these LNG volumes are destined for Asia, while Europe receives roughly 20%, meaning disruptions would exacerbate competition between regions, especially in a tight market.
'The sheer volume of oil passing through the Strait and the scarcity of alternative routes means even brief disruptions would have significant consequences for the global market,' the IEA stated.
While a full closure remains a low-probability scenario, analysts agree that the threat alone is enough to inject volatility into energy markets.
Crude oil prices surged by 13% last week amid escalating tensions between Israel and Iran. Although prices have since eased slightly after reports confirmed that Iranian energy infrastructure remained untouched by Israeli strikes, the risk of further escalation—and potential disruption to global energy flows—remains elevated.
In response, Wall Street analysts have been quick to assess the possible fallout from any interruption of oil and gas shipments through the Persian Gulf, particularly the Strait of Hormuz.
Goldman Sachs warned that an extreme risk scenario involving a prolonged closure of the Strait could push prices well above $100 per barrel.
The investment bank estimates that Iran currently produces around 3.6 million barrels per day (mb/d) of crude oil and 0.8 mb/d of condensates, with total seaborne exports averaging 2.1 mb/d so far this year—most of it heading to China. T
ING's head of commodities strategy, Warren Patterson, indicates that the market has begun pricing in a substantially higher geopolitical risk premium in light of recent developments.
Patterson stated that any disruption to Iranian oil flows would be enough to eliminate the expected oil surplus for the fourth quarter of 2025, likely pushing Brent crude prices toward $80 per barrel.
Yet, the analyst warns that a more severe scenario—such as a disruption of shipping through the Strait of Hormuz—could be far more consequential.
'Almost a third of global seaborne oil passes through this chokepoint,' he noted. 'A significant disruption to these flows could drive prices up to $120 per barrel, particularly because most of OPEC's spare capacity is located in the Persian Gulf and would be inaccessible under such conditions.'
"This escalation also has ramifications for the European gas market," he added.
The Strait of Hormuz is more than just a shipping lane—it's a lifeline for global energy.
With no easy detours for oil or LNG flows, its vulnerability puts markets on edge every time tensions flare in this region. A full closure of the Strait may still seem a remote event, but the mere threat is enough to rattle markets and keep oil prices elevated.
As Iranian and Israeli forces continue to exchange strikes, the risk of miscalculation looms large. In a region where diplomacy is fragile and stakes are high, one wrong move could turn a regional conflict into a global energy crisis.
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CNN
8 minutes ago
- CNN
What is the Strait of Hormuz and why is it so significant?
While there have been no major disruptions to the global oil supply so far, the attacks on Iran – by Israel and then the US – have rattled investors, sending oil futures soaring by around 10%, among fears Iran could retaliate by disrupting shipping in the Strait of Hormuz. From the perspective of the global economy, there are few places as strategically important. The waterway, located between the Persian Gulf and the Gulf of Oman, is only 21 miles wide at its narrowest point. It's the only way to ship crude from the oil-rich Persian Gulf to the rest of the world. Iran controls its northern side. About 20 million barrels of oil, about one-fifth of daily global production, flow through the strait every day, according to the US Energy Information Administration (EIA), which called the channel a 'critical oil chokepoint.' On Sunday evening, following US airstrikes on three of Iran's nuclear facilities, Brent crude, the global benchmark, briefly surged above $80 per barrel, according to Refinitiv data, the first time that's happened since January. Before the conflict, prices had largely hovered between $60 and $75 a barrel since August 2024. Brent last traded at $78.2 per barrel, while WTI, the US benchmark, was at $75.06. Whether oil prices will climb further now depends on Iran's response. Rob Thummel, senior portfolio manager at energy investment firm Tortoise Capital, told CNN that a potential disruption to the Iran-controlled sea route would cause oil prices to surge toward $100 per barrel. A functioning Strait of Hormuz is 'absolutely essential' to the health of the global economy, he said. A prominent adviser to Iran's supreme leader, Ayatollah Ali Khamenei, has already called for the closure of the Strait. 'Following America's attack on the Fordow nuclear installation, it is now our turn,' warned Hossein Shariatmadari, the editor-in-chief of the hardline Kayhan newspaper, a well-known conservative voice who has previously identified himself as a 'representative' for Khamenei. Geographic leverage over global shipping gives Iran the 'capacity to cause a shock in oil markets, drive up oil prices, drive inflation, collapse Trump's economic agenda,' Mohammad Ali Shabani, an Iran expert and editor of the Amwaj news outlet, told CNN. When it comes to moving oil, the Strait is actually much narrower than its 21-mile official width. The navigable shipping lanes for massive supertankers are only about two miles wide in each direction, requiring vessels to pass through both Iranian and Omani territorial waters. A closure of the Strait will be particularly detrimental to Asian economies which rely on the crude oil and natural gas shipped through the route. The EIA estimates that 84% of the crude oil and 83% of the liquefied natural gas that moved through the Strait of Hormuz last year went to Asian markets. China, the largest buyer of Iranian oil, sourced 5.4 million barrels per day through the Strait of Hormuz in the first quarter this year, while India and South Korea imported 2.1 million and 1.7 million barrels per day, respectively, according to the EIA's estimates. In comparison, the US and Europe imported just 400,000 and 500,000 barrels per day, respectively, in the same period, according to the EIA. On Sunday, India's Minister for Petroleum and Natural Gas Hardeep Singh Puri sought to reassure jittery investors on X that the country has 'diversified' its oil supplies in the past few years. On Sunday, India's Minister for Petroleum and Natural Gas Hardeep Singh Puri said on X that the country has 'diversified' its oil supplies in the past few years. 'A large volume of our supplies do not come through the Strait of Hormuz now. Our Oil Marketing Companies have supplies of several weeks and continue to receive energy supplies from several routes,' he said. 'We will take all necessary steps to ensure stability of supplies of fuel to our citizens.' CNN's John Towfighi, Nadeen Ebrahim, and Rhea Mogul contributed reporting.
Yahoo
8 minutes ago
- Yahoo
Oil prices climb on fears Iran will blockade supplies
STORY: Oil prices climbed to their highest in five months on Monday as fears grew over what conflict in the Middle East could mean for supplies. Traders are waiting to see what Iran does next, after the U.S. struck its key nuclear facilities. Media reports say the country's parliament has approved a move to close the Strait of Hormuz. That's the narrow waterway between Iran and Oman, through which around a fifth of the world's oil is moved. Although there are also pipeline routes out of the region, experts say they won't be enough to make up for a halt to shipping. The concerns saw international benchmark Brent crude up around 1.5% in Asian morning trade Monday, with U.S. crude posting similar gains. Both are up 10% or more since the conflict began. One analyst told Reuters that a move by Iran to disrupt shipping could see oil hit $100 per barrel, up from around $78 now. That could spur inflation and mean higher gasoline prices around the world. Stock prices headed the other way on Monday, with Japan's Nikkei index down 0.5% early on. But analysts said there was no sign yet of panic selling across markets. Optimists cited hopes that regime change in Iran could bring a more moderate government to power. Though analysts at JPMorgan cautioned that past episodes of upheaval in the Middle East typically resulted in oil prices spiking by 76%.
CNN
14 minutes ago
- CNN
Trump floats Iran ‘regime change' even as the true impact of US strikes is far from clear
President Donald Trump's onslaught of Iran's nuclear plants was the most violent moment of his two terms and America's 46-year showdown with the Islamic Republic. Flush with the spoils of battle, he already seems to be toying with the idea of regime change. But the reality of whether Trump truly destroyed Iran's nuclear ambitions and the consequences of his aggression are far more ambiguous than his bullish claims of victory would suggest. The president insisted Sunday that the damage to three nuclear sites struck by the US was 'monumental.' He posted on social media that 'the hits were hard and accurate.' Round-the-world raids by B-2 stealth bombers out of Missouri using never-before-deployed 'bunker-busting' bombs demonstrated the unique reach of the US military and its continued potency despite Trump administration chaos at the Pentagon. If Trump's order eradicated Iran's nuclear program, or set it back years or decades, he could claim a legacy achievement that lifted an existential threat to Israel. If Iranian power is neutered, the Middle East could be transformed. The president effectively tried to bomb Iran to the negotiating table and to an effective surrender of its capacity to enrich uranium. But it's a long shot whether humiliation by an enemy Tehran regards as the 'Great Satan' will convince it to sue for peace. And questions are mounting over whether the strikes over the weekend truly 'obliterated' all of Iran's nuclear infrastructure as Trump claims. And the president has still not shared the intelligence that convinced him that Iran was 'a few weeks away' from building a nuclear weapon — even though US spy agencies assessed it had not yet decided to do so. It is now vital to establish whether Iran salvaged any enriched nuclear material or even relocated it ahead of the US strikes. If it did, Trump's bid to eliminate its path to a weapon could instead catalyze a race by Tehran to build a rudimentary device that would leave the world a far more dangerous place. 'Anybody who says that they have any idea whatsoever about whether these raids did anything other than create a big boom and a lot of dust has no idea what they're talking about,' Rep. Jim Himes, the top Democrat on the House Intelligence Committee, told CNN's Kasie Hunt on 'State of the Union' on Sunday. In the meantime, everyone is waiting on Iran's military revenge, with the Middle East on alert for new turmoil — and Americans potentially in the firing line. Tehran's decisions will be fateful. A slide into yet another open-ended Middle East war is not inevitable. But history shows that American attempts to reshape the region almost always fail to capitalize on 'shock and awe' openings. Amir-Saeid Iravani, the Islamic Republic's envoy to the United Nations, said on Sunday that 'the timing, nature and the scale of Iran's proportionate response will be decided by its armed forces.' There's growing uncertainty, meanwhile, about the president's intentions. Vice President JD Vance insisted on Sunday that the US wasn't at war with Iran or seeking to topple its leaders. But Trump on Sunday evening raised the possibility of mission creep, asking on Truth Social, 'Why wouldn't there be a Regime change???' That was likely music to the ears of Israeli Prime Minister Benjamin Netanyahu. The situation inside Iran's leadership remains opaque. The country was already in a period of transition as the long rule of Supreme Leader Ayatollah Ali Khamenei enters its sunset. But Israel's dismantling of Iran's regional power by crushing its proxies in Gaza and Lebanon, and now America's blow against its nuclear aspirations, could foment unpredictable political forces. It's unlikely that any loosening of the clerical regime's control would result in the more benign leadership that the US and Israel would prefer, and which millions of more moderate Iranians crave. Instead, political upheaval could bring even greater domestic repression. And any signs of state collapse in a nation twice the size of Iraq could send shockwaves throughout the region and across the globe. America's latest plunge back into the Middle East is already having profound political reverberations back home. Top Republicans heaped praise on what they see as Trump's strength, clarity and daring. But despite his deep bond with his base, some influential right-wing influencers fear he could be driving the MAGA movement into a quagmire. And a president with autocratic instincts who is severely straining the rule of law and the Constitution and is using his power to punish his perceived enemies has now led the US into a potential new conflict on a hunch without making any case to the public and after ignoring Congress's power to declare war. This cascade of uncertainties in the aftermath of Trump's strikes underline that he gave up total control of this new crisis as soon as US bunker busters dropped on the Fordow nuclear plant. The resolution of this clash with Iran — a seat of civilization laced with historic, sectarian, religious and political fault lines and a resentment of perceived US colonialism — is unlikely to be as clean as the decision to send a squadron of B-2 bombers around the globe to enforce the impulses of an American strongman. The next move probably belongs to Iran. Depending on the state of its military after days of pounding Israeli airstrikes, Tehran has options. It could target vast US military bases and assets in the region. It might close the Strait of Hormuz to spark a global energy crisis. It could send missiles into the oil fields of US allies. It might try to stage terror attacks against US interests in the region, or even in the American homeland. Each of these options comes with high risks. It may be counterproductive, for instance, for Tehran to close shipping lanes that would slow its own oil exports to China and Russia, its nominal allies. But each of these steps could also draw Trump deeper into a direct confrontation with Iran and a full-scale war — showing the limits of his ability to control a cycle of escalation. Vance told ABC News' 'This Week' that if Iran gave up its nuclear program 'peacefully' then it would find a willing partner in the US, but if it hit back against US troops, it would be met with 'overwhelming force.' But a president who vowed to avoid new wars sounds increasingly warlike. In his social media post announcing the strikes on Saturday, Trump called on Iran to negotiate with the US over the complete end of its nuclear program. But his subsequent address to the nation was far more belligerent, warning, 'There will be either peace, or there will be tragedy for Iran, far greater than we have witnessed over the last eight days. Remember, there are many targets left.' The possibility of deepening hostilities therefore seems acute. This is not least because a regime that defined itself for nearly half a century through antipathy to the US may perceive an existential need to show strength. Still, a resort to all-out warfare by Iran could offer an opening for the US or Israel to move toward a regime decapitation strategy — despite the grave risks of turning Iran into a failed state. The exact state of Iran's remaining nuclear capability will be a top issue in the coming days. Gen. Dan Caine, the chairman of the Joint Chiefs of Staff, was noticeably far less bullish in immediate assessments of the results of Saturday's raids than Trump or Defense Secretary Pete Hegseth. New battle damage assessments carried out by surveillance and other forms of intelligence could decide whether Trump may order follow-up raids that could further exacerbate tensions. Early independent examinations of the aftermath of the strikes suggest that the damage to one of the three key sites — Isfahan, which was targeted by US cruise missiles — was restricted to aboveground structures. Unlike the other two Iranian facilities targeted in the operation, B-2 bombers did not drop massive 'bunker-buster' bombs on the Isfahan facility, multiple sources told CNN. 'This is an incomplete strike,' said Jeffrey Lewis, a weapons expert and professor at the Middlebury Institute of International Studies who has closely reviewed commercial satellite imagery of the strike sites. 'If this is all there is, here's what left: the entire stockpile of 60% uranium, which was stored at Isfahan in tunnels that are untouched.' Himes warned that Iran could have moved some enriched uranium out of Fordow before the strikes. 'You have got the possibility — and I will stress possibility here — that there's a lot of highly enriched uranium sitting underneath a hornet-mad regime that has decided that the only way we're going to forestall this in the future is to actually sprint towards a nuclear weapon,' Himes said. If that is the case, Trump will have created a threat to the US and Israel that will rumble on for years to come. 'I think the more interesting thing other than retaliation, is reconstitution,' Richard Haass, president emeritus of the Council on Foreign Relations, told CNN's Fareed Zakaria. 'What lessons did the Iranians draw? It's quite possible they will decide that this never would have happened had they had nuclear weapons. So I think it's possible their retaliation is relatively modest. And what they really want to do is put themselves on a trajectory where some years down the road, when there's another crisis, they're in a different position.' 'So, this may not be quite as neat as we think. This could actually play out not just over weeks and months, but over many years.' Washington, meanwhile, is already buzzing with a familiar spectacle of officials, experts and pundits all making logical cases for why Trump was right to act, why the mission succeeded and how Iran could best serve its interests with a restrained response. But as the long list of lost US wars in the late 20th century and 21st century attests, things are almost never so simple.
