Additional Coverage:
- The Strait of Hormuz is a critical choke point for global energy markets, but there are ways to get around it (fortune.com)
Strait of Hormuz Becomes Global Energy Flashpoint Amid Rising Tensions
The Strait of Hormuz has once again taken center stage in the global energy landscape, following weekend military actions by the U.S. and Israel against Iran. In a swift response, Iran’s Islamic Revolutionary Guard Corps has reportedly launched missiles targeting vessels near the vital waterway, causing a significant disruption to ship traffic.
While Iran has yet to implement a full closure of the strait, major shipping companies are rerouting their vessels as a precautionary measure, contributing to a noticeable uptick in global oil prices.
The U.S. Energy Information Administration (EIA) highlights the critical importance of the Strait of Hormuz, through which an average of 20 million barrels of oil flow daily.
This volume represents approximately 20% of the world’s daily petroleum liquids consumption and a quarter of all seaborne oil trade. Beyond crude oil, about one-fifth of global liquefied natural gas (LNG) trade, primarily originating from Qatar, also transits through the strait, according to the EIA.
Analysts warn that any sustained closure of the Strait of Hormuz would trigger severe market instability, potentially driving crude oil prices to as high as $100 per barrel. Such a closure could involve a range of tactics, including the deployment of mines, patrol boats, aircraft, cruise missiles, and diesel submarines.
Although the U.S. Navy maintains a substantial presence in the region, clearing the strait could prove to be a protracted effort, potentially spanning weeks or even months.
However, several alternative routes exist that could help mitigate some of the economic fallout from a closure. Saudi Aramco, Saudi Arabia’s state-owned energy company, operates a crude oil pipeline stretching from the Abqaiq oil processing center on the Persian Gulf to the port of Yanbu on the Red Sea. Similarly, the United Arab Emirates utilizes a pipeline that bypasses the Strait of Hormuz, connecting its onshore oilfields to the Fujairah export terminal in the Gulf of Oman.
The EIA estimates that these Saudi and UAE pipelines combined could divert approximately 2.6 million barrels of oil per day, offering a partial alternative to the 5.5 million barrels per day of crude and condensate that Saudi Arabia exported through the strait in 2024. Iran also possesses an alternative pipeline and export terminal on the Gulf of Oman with a capacity of roughly 300,000 barrels per day, though its utilization has historically been significantly lower. In contrast, the vast majority of Iran’s oil exports, which averaged around 1.9 million barrels per day in December, currently rely on the Strait of Hormuz.
Many experts believe an Iranian closure of the strait is an unlikely scenario, primarily due to the severe economic repercussions it would inflict on Iran itself, as well as the high probability of a forceful international response, particularly from the U.S. Kenneth Pollack, a former CIA Persian Gulf military analyst, suggested in a Foreign Affairs column last June that such an action would quickly transform Iran from a “sympathetic victim to a dangerous nemesis” in the eyes of the international community, prompting Western nations, and potentially even China, to intervene to reopen the waterway.