Iran: Is the cost of closing the Strait of Hormuz too high?
AP image
For a few days, the world held its breath. It seems the conflict between Israel, the US and Iran is not going to escalate any further, at least for now. Iran opted to save face by launching an attack on a US military base in Qatar, which the stock market interpreted as a de-escalatory gesture.
This retaliatory strike by Tehran was "loud enough for headlines, quiet enough not to shake the oil market's foundations," Stephen Innes of SPI asset management commented to Reuters. Immediately after the strike on Monday evening, the oil price fell again sharply.
And yet Iran holds a powerful trump card. It could do immense damage to the global economy by blockading the Strait of Hormuz. But would this really be to its advantage — or would it be more of an own goal?
Why oil exports are so important for Tehran
The US energy information administration (EIA) says that "Iran's economy is relatively diversified compared with many other Middle Eastern countries."
However, the goods produced by the country's industry are primarily sold on the domestic market.
The export of oil and petroleum products is therefore an important source of income for the government. These constitute more than 17 percent of the country's total exports, with natural gas at 12 percent. According to the EIA, Iran was the fourth-largest producer of crude oil among the OPEC countries in 2023, and in 2022 it was the world's third-largest producer of dry gas (natural gas that is at least 85 percent methane, containing only negligible quantities of condensable gases such as hydrogen).
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Iran exports oil, despite sanctions
Although it has been subject to sanctions for many years, this has not prevented the Iranian regime from exporting oil. China in particular has benefited: In 2023, it took almost 90 percent of the oil exported by Iran.
In March 2024, the Financial Times quoted Javad Owji, Iran's minister of petroleum at the time, saying that Iran's oil exports "generated more than 35 billion dollars" in 2023. According to the World Bank, between April and December 2023 the oil sector represented more than 8 percent of Iran's GDP.
And based on estimates from the data analysis company Vortexa, it is believed to have exported even more the following year.
China: an important trade partner
Iran would therefore damage itself if it blocked the Strait of Hormuz. Not only would its own oil revenue be affected, it would also upset its trading partner China, which profits from buying the oil at low cost.
The London-based TV station Iran International estimates that Tehran sells its oil at a 20 percent discount on the world market price, because its buyers risk getting into trouble on account of the US sanctions.
The broadcaster explained that Chinese refineries are the biggest buyers of Iran's illegal consignments of oil. Intermediaries mix it with deliveries from other countries, and the oil is then declared in China as having been imported from Singapore or other countries of origin.
According to Rystad Energy, an independent energy research company based in Norway, China imports a total of almost 11 million barrels of crude oil per day, around 10 percent of which comes from Iran.
Blockade would affect neighbouring countries
A blockade would also have caused trouble for Iran's neighbours. Kuwait, Iraq and the United Arab Emirates also transport their oil through the passage. In a post on LinkedIn, the economist Justin Alexander, a Gulf region analyst, commented that if Tehran were to close the strait, this would "undermine remaining alliances" it still has with countries in the region.
Whether Iran could actually maintain a blockade is also doubtful.
Homayoun Falakshahi from the analytics firm Kpler told German TV that he believed a blockade would provoke a swift and forceful military response from both the US and European countries, and that Iran would only have been able to close the strait for a day or two.
Iran's struggling economy
Furthermore, if Iran's economic situation were to deteriorate even further, it would go down very badly with the Iranian people. Djavad Salehi-Isfahani, professor of economics at Virginia Tech in the US, told DW that the standard of living in Iran had already dropped to the level of 20 years ago as a result of sanctions.
These apply not only to the oil industry, but also to international payment transactions with Iran, which drives up inflation. This has been rising steeply since the beginning of the year, to more than 38.7 percent in May 2025 compared with May 2024. The combination of sanctions and the low exchange rate is making daily life ever more expensive for people in Iran.
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