The US-Israel attacks on Iran have sparked a tense situation, with Tehran retaliating by targeting assets in multiple Middle East countries, including Israel, Qatar, the UAE, Kuwait, Bahrain, Jordan, Saudi Arabia, Iraq, and Oman. This escalating conflict has analysts warning of a potential global oil crisis, as Iranian officials hinted at shutting down the Strait of Hormuz, a critical maritime route for global energy trade.
The Strait of Hormuz, located between Oman and the UAE, is a narrow passage that links the Arabian/Persian Gulf with the Gulf of Oman and the Arabian Sea. It is just 33km wide at its narrowest point, with a shipping lane only 3km wide in either direction, making it highly vulnerable to attacks. Despite its narrow width, it accommodates the world's largest crude carriers, facilitating the movement of oil and gas from major Middle Eastern exporters to international markets.
In 2024, approximately 20 million barrels of oil, valued at $500 billion in annual global energy trade, transited through the Strait of Hormuz daily. The crude oil originates from Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the UAE. The strait also plays a significant role in liquefied natural gas (LNG) trade, with Qatar accounting for the majority of global LNG shipments passing through it.
The Strait of Hormuz handles both oil and gas exports and imports. Kuwait and the UAE import supplies from outside the Gulf, including the US and West Africa. In 2024, 84% of crude oil and condensate shipments transited the strait to Asian markets, with China, India, Japan, and South Korea accounting for 69% of these flows. A similar pattern exists in gas trade, with 83% of LNG volumes destined for Asian destinations.
Any instability in the Strait of Hormuz could disrupt global economic stability. A closure would significantly impact oil prices, as energy traders have been on high alert due to escalating tensions in the region, which is home to vast oil and gas reserves. Since the war began, vessel traffic through the strait has sharply decreased, with a surge in idling vessels on both sides of the Gulf of Oman and the Gulf.
The Strait of Hormuz is crucial to the global energy market, as approximately 30% of the world's seaborne crude oil transits through it. Additionally, it handles nearly 20% of global jet fuel and about 16% of gasoline and naphtha flows. The recent escalation of the conflict, with an oil tanker struck off the coast of Oman, further highlights the vulnerability of energy assets.
The potential closure of the Strait of Hormuz would disrupt a significant portion of globally traded oil, causing a violent upward spike in prices due to fear alone. This shock would reverberate beyond energy markets, tightening financial conditions, fueling inflation, and pushing fragile economies closer to recession within weeks. The global economy is already facing challenges, and any disruption to energy flows through Hormuz will further impact fuel and factory costs, adding upward pressure to inflation.
In conclusion, the US-Israel attacks on Iran and the resulting tensions have the potential to cause a global oil crisis, impacting the global economy and driving up fuel and factory costs. The Strait of Hormuz, a critical maritime route, is at the center of this crisis, and its closure could have severe consequences for the world's energy markets and economies.
