Why all eyes are in the Strait of Hormuz, 90 miles of strips important to global oil prices
Many oil tankers pass through the Strait of Hormuz every day.Reuters
The US strike at Iran’s nuclear site has caused fears of Tehran’s retaliation and oil turmoil.
For years, Tehran has threatened to close the Strait of Hormuz, the main energy transport route to the south.
The lockdown will hit the Asian market the most violently, with global high prices also affecting the US.
Global investors are wary of 90 miles of ocean passages in the Middle East and fear that the Strait of Hormuz block can derail global transportation and oil.
Tensions in the Middle East escalated sharply later We attacked Iran’s nuclear facility On Sunday, he cited fears of retaliation from Tehran. Beyond defense and security concerns, the market is concerned about fallout in oil prices, and the global economy has been repeated for years if Iran hampered transportation in the Strait of Hormuz.
“If Iran chooses to block the Strait of Hormuz, it will be decisively negative,” Kyle Rodda, senior financial market analyst at Capital.com, told Business Insider.
“In the worst case scenario, it would be very influential: rising fuel prices, higher inflation, slower growth, and higher interest rates than otherwise,” Rododa said.
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One of the most geopolitical sensitive maritime routes, the Strait of Hormuz is only 21 miles at its narrowest point. The Persian Gulf connects the Indian Ocean, Iran to the north, and the United Arab Emirates and Oman to the south.
According to the U.S. Energy Information Agency, Holmes is one of the busiest transport lanes in the world, carrying around 20 million barrels of oil a day.
Most energy shipments through the Strait of Hormuz have no other means of leaving the Persian Gulf, the starting point for major oil producers like Saudi Arabia to export energy to the world.
Transport disruptions will hit the energy market hard, as about a quarter of seawater oil and five fifths of liquefied natural gas trade travel through Hormuz.
“The US bombing of Iran’s nuclear facilities over the weekend has significantly increased supply risks in the oil and LNG market,” wrote Warren Patterson, ING’s head of product strategy, on Monday.
Iran does not have legal authority to close marine traffic in Hormuz. However, damage to oil and transportation infrastructure, for example, can disrupt the movement of a vessel by other means.
On Sunday, Iranian Congress voted to close the Strait of Hormuz in retaliation for US actions. According to Iran’s state-run press conference, the final decision remains at the country’s top security officials.
Analysts said they believe the Iranian lockdown is probably more about political stance than real action.
“The headlines sound drastically, but the reality is that Iranian parliament does not retain enforcement over military or strategic decisions, not particularly with such widespread geopolitical and economic consequences,” said Dillin Wu, a research strategist at Pepperstone.
“Iran is well aware that direct disruption of global oil flows through the straits can lead to significant military and economic responses and escalate conflicts beyond its control,” she added.
As the US is an energy giant and has been a net energy exporter since 2019, the trend in physical supply shocks from the Halmus lockdown is low.
However, the US could still be hit by the fallout caused by the worsening global economic situation.
“The negative impact will come through worsening financial position or higher rates at longer rates, as there is another reason for the Fed to slow down cuts,” an analyst at Deutsche Bank said in a memo on Monday.
Asian countries are most affected by the Hormuz lockdown, said Priyankasakudeva, a senior analyst at broker Philip Nova.
According to the EIA, in 2024, more than 80% of the crude oil, condensate and LNG passed through Halmes exceeded 80% of the condensate and LNG.
“Asia, which consumes the proportion of oil lions in the Middle East, will be the most vulnerable as India, Japan, South Korea and China face logistics uncertainty and more expensive rerouting,” Sakdeva said.
In 2023, Bloomberg calculated that a third of the oil that passed through Halmus would head to China.
Saudi Arabia and the United Arab Emirates are able to rerout such exports in large quantities through pipelines and UAE ports in Fujairah, but Southern European countries relying on Gulf oil could also face higher import costs.
As energy is a critical input cost, rising oil prices could significantly increase inflation.
US strike against Iran has been sent Oil Futures Until 5 months until late on Sunday. Oil prices have risen by about 10% since Israel attacked Iran in June.
These developments take place during the summer driving season, when US gas demand is at its peak. If crude oil prices profits remain, pump prices could rise in the coming weeks.
According to the EIA, gas prices typically rise by 2.4 cents per gallon when crude oil prices rise by $1. This will earn around 20 cents per gallon at the current level of oil futures.
