How will UAE, rest of the world be impacted if Iran closes the Strait of Hormuz?

Khaleej Times

23-06-2025

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Rising tensions between Iran and Israel have once again raised fears that Iran might close the Strait of Hormuz, one of the world's most important energy routes.
According to Goldman Sachs, a prolonged blockade could push oil prices up to $100–$120 per barrel, and possibly even $150 in worst-case scenarios. So, what happens if Iran follows through? Here's a region-by-region breakdown.
What is the Strait of Hormuz and why does it matter?
The Strait of Hormuz is a narrow 33-kilometre waterway between Iran and Oman. It's the world's most critical oil chokepoint. In 2024, about 21 million barrels of crude oil and refined products passed through it every day — that's 20 per cent of global oil consumption.
It also handles a quarter of all seaborne oil trade and 20 per cent of global LNG (liquefied natural gas) exports, mainly from Qatar and the UAE.
For the UAE, the strait is a vital trade route. About 75 per cent of its oil exports go to Asia, especially China, India, Japan, and South Korea.
Impact on UAE and Middle East
A closure could have implications for energy exports across the region. The UAE has proactive measures to diversify its export routes should that happen.
The Abu Dhabi Crude Oil Pipeline to the Fujairah terminal (capacity: 1.8 million barrels per day) provides an alternative route for a substantial portion of its exports, which averaged 3.3 million b/d in 2024. In the event of a short-term price surge, higher oil prices could enhance UAE revenues.
However, longer disruptions might lead to logistical challenges and increased shipping costs, especially for trade with Asia.
Other Gulf countries would also face pressures: Saudi Arabia sends 6 million b/d through the strait but can partially reroute via its East-West Pipeline (capacity: 5 million b/d). Qatar may see LNG shipments impacted, while Kuwait and Iraq, with limited bypass options, could face temporary export constraints.
United States
The US imports less than five per cent of its oil through the strait, so direct supply disruption is minor. But price shocks wouldn't spare American consumers. If Brent crude crosses $100, US gas prices could jump above $4 per gallon, adding to inflation and hurting household budgets.
Europe
Europe relies on Qatar for about 15 per cent of its gas, making the Strait of Hormuz critical. Any blockade would worsen Europe's ongoing energy crunch, already stretched by cuts in Russian gas. Higher oil and gas prices would hit homes and factories, fuelling inflation and slowing growth.
Asia
Asia stands to lose the most. About 75 per cent of the oil passing through the strait is headed for Asia. China gets 45 per cent of its crude via the strait and would have to tap into emergency reserves. India, also heavily reliant on Gulf oil, would face fuel shortages and economic disruption. Japan and South Korea would suffer supply shocks and rising costs. Tankers would be forced to reroute around Africa's Cape of Good Hope, raising global shipping expenses and affecting supply chains.
Africa
East African countries like Kenya and Tanzania, which import oil through the strait, would see fuel prices surge. Tanker costs to the region have already risen 25–35 per cent in 2024 due to Red Sea and Hormuz risks. A full closure would worsen shortages and drive up living costs.
Can Iran actually block the strait?
Yes, Iran has the tools: naval mines, anti-ship missiles, and GPS jamming. It disrupted shipping during the 1980s Iran-Iraq "Tanker War", though it never fully shut the strait.
Iran's state-run Press TV reported earlier that parliament had approved a plan to close the strait, but the final decision rests with the Supreme National Security Council. A total blockade is unlikely, according to experts. Iran itself exports 2.5 million b/d of oil through the strait, including 1.5 million b/d to China. Closing it would hurt its own economy and likely invite a US-led military response.
Global economic fallout
A sustained closure would trigger a global energy crisis similar to the 1973 oil embargo. Oil could hit $150 per barrel, though that's speculative. Inflation would spike. Supply chains would fray. Rerouted shipping would add costs across industries.
Strategic petroleum reserves — 600 million barrels in the US, 400 million in Europe, and 1.2 billion in Asia — could mitigate short-term shortages, but drawdown rates and accessibility vary, limiting long-term relief. Prolonged disruptions would strain economies, particularly in energy-hungry Asia.
Where things stand now
As of June 23, 2025, the Strait of Hormuz remains open. But Brent crude has risen from $75 to $82 per barrel in recent weeks.
In response to Iran's threats, the US has redirected the USS Nimitz Carrier Strike Group from the South China Sea to the Middle East, where it has joined the USS Carl Vinson in the Arabian Sea. The presence of two carrier groups in the region is described as part of broader efforts to reinforce maritime security in the region. Shell CEO Wael Sawan, has meanwhile cautioned that any escalation could 'disrupt global trade significantly' .