Why the Strait of Hormuz remains critical for the global economy

Yahoo

24-06-2025

As oil prices are climbing after the attacks on Iran by Israel and then the US, investors are closely watching the fate of a narrow sea passage in the Middle East.
The Strait of Hormuz is vital for gas and oil exporters in the Gulf region, as this is the only route by sea to export large volumes of oil and gas produced among the oil-rich countries in the region.
This narrow passage is located between Oman and Iran, connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea.
It is about 167 km long, and at its narrowest point, 39 km wide.
According to the Joint Maritime Information Centre, June 2024 averaged 114 vessels transiting the strait daily and so far traffic in June 2025 is consistent with this. On 21 June, for instance, there were 122 vessels passing through the strait.
The passage is deep enough and wide enough to handle the world's largest crude oil tankers, and it is one of the world's most important oil chokepoints (narrow channels along widely used global sea routes that are critical to global energy security).
Related
Oil price drops, shares jump as Trump announces Israel-Iran ceasefire
Israel-Iran conflict fuels best month for energy stocks since 2022
The health of the world economy depends on the flow of oil from this region.
Oil tankers on average carry through the strait 20 million barrels per day (b/d), or the equivalent of about 20% of global petroleum liquids consumption, according to the US Energy Information Administration analysis.
'A potential Iranian blockade of the Strait of Hormuz would send shockwaves through the global economy," Professor Guido Cozzi, Chair of Macroeconomics at the University of St. Gallen, said to Euronews.
He added that any disruption to the oil flow in this narrow waterway would drive up energy prices, fuel inflation, and strain supply chains.
Related
What's at stake for Europe if the Strait of Hormuz is blocked?
Continental Europe and China are losing the most, both heavily reliant on imported energy and lacking domestic buffers.
"They would face rising costs, slower growth, and heightened inflation without any upside," Cozzi said.
Meanwhile, the US and the UK would see their exports become more competitive, as they are sourcing the majority of their energy from elsewhere. And if the strait would be closed, pushing prices up globally, that would benefit Western producers more than it would harm them, according to the professor.
Besides oil, global natural gas supply could also be seriously impacted, as Qatar, one of the world's biggest natural gas exporters uses the narrow seaway to export about 77 million metric tons of liquefied natural gas (LNG) a year. This is one-fifth of the global LNG supply.
"Alternative supply routes for Middle Eastern oil and gas are limited, with pipeline capacity insufficient to offset potential maritime disruptions through the Persian Gulf and Red Sea,' S&P said in an analysis.
'Any Iranian closure of the Strait of Hormuz would affect not only its own exports but also those of Saudi Arabia, the UAE, Kuwait and Qatar, potentially removing over 17 million b/d of crude oil from global markets,' added the analysis, saying that Saudi Arabia and the UAE have pipelines that can circumvent the strait.
Analysts expect oil prices to skyrocket and surpass $100 a barrel if Iran decides to close the passage.
Though insurance for the oil tankers passing through the strait increased and the situation is quite tense, according to the Joint Maritime Information Centre, there are no indications of threats to commercial shipping.
Related
The dollar sees a rebound after US strikes Iran, but can it continue?
After US attacks on three Iranian nuclear sites, on 22 June, the Parliament in Tehran voted to close down the strait. A step that has never been taken.
The decision is pending approval by the Islamic Republic's Supreme National Security Council.
Iran threatened several times in the past that it would cut this artery of oil in the past but it never followed through with the threat. US Vice-President JD Vance called the move 'suicidal' for Iran's economy on Sunday at a press conference.
Creating a major disruption in the strait would be extremely difficult due to various economic, political and military forces present in the region today, said the Robert Strauss Center for International Security and Law in an analysis.
Experts agree that Iran itself has a lot to lose and very little to gain as it would cut its own oil exports to major trade partners such as China. Besides losing a key source of revenue, Iran would also anger its oil-producing neighbours whose support they may not be able to afford to risk.
Related
Oil rises and Europe's markets open lower after US strikes on Iran
If Iran decides to close the passageway, another question is, for how long? The duration could be key, as global stockpiles are currently sufficient. The nations in need have at least 5.8 billion barrels of crude and fuel stockpiled between them, according to Bloomberg. This shows a healthy buffer, compared to the annual 7.3 billion barrels a year, passing through the strait.
According to Barclays, other possible scenarios include Iran trying to target the Strait of Hormuz using missile attacks, making ships and insurance firms hesitant to use Hormuz. They could also consider mining the strait, which would hit traffic to a greater extent.
There are also less aggressive ways to further disturb commercial shipping through Hormuz. For instance, the widespread jamming of GPS signals could make it harder to navigate safely in certain conditions.