Why Strait of Hormuz Risks Jitter Oil Markets

2025-06-18 07:14:00

Oil Prices Face Uncertain future Amidst Iran-Israel Tensions

The Strait of Hormuz, a crucial oil transit point, is under threat as rising tensions between Iran and israel rattle global markets.

• Oil prices stabilized on June 17 after initial spikes.
• Iran threatens to close the Strait of Hormuz in response to Israeli attacks.
• The Strait of Hormuz is a critical chokepoint for global oil transport.

Are oil prices heading for another surge? The escalating conflict between Israel and Iran has the world on edge, with the potential to disrupt the flow of oil through the strategic Strait of Hormuz. This vital waterway, crucial for global energy supplies, is now a focal point for market anxieties.

A Chokepoint for Global Oil

The Strait of Hormuz,a mere 50 kilometers wide,acts as a vital artery between Iran and Oman.A significant portion of the world’s oil and liquefied natural gas supply courses through this narrow passage. Roughly a fifth of the world’s oil and a third of its liquefied natural gas exports pass through the Strait daily, according to the Energy Information Agency (AIE).

The image vividly shows the Strait of Hormuz and the Gulf of Oman, captured by the NASA Terra satellite on February 5, 2025.

Did you know?-The Strait of Hormuz is one of the world’s most strategically crucial waterways. Its narrow width makes it easily susceptible to closure or disruption, which could have major global economic consequences.

Iran’s Threats and Strategic posturing

Iran has a history of leveraging its position over the Strait of Hormuz to influence international affairs. In 2011, Iran threatened to halt oil transit through the Strait if sanctions were imposed over its uranium enrichment program. This threat was repeated in 2019, following the U.S. withdrawal from the Iranian nuclear agreement.

Sardar Esmail Kowsari, a commander of the revolution guards and deputy of Tehran, mentioned that closing the Strait was “under study.” He emphasized that all options are on the table, including a military response.

Reader question:-How do you think the international community should respond to threats against the Strait of Hormuz, balancing economic stability with regional security concerns? Share your thoughts below.

Market Volatility and Analyst Perspectives

Oil markets have experienced fluctuating prices, reflecting the uncertainty. On Monday, prices dipped to $71 per barrel after exceeding $75 on Friday. Michael Wan of MUFG Bank noted that the market lull on Monday was due to reports that Iran was open to negotiations.Wan also said, “the latest information still suggests that there has been no physical disruption of the world supply or impact on the Strait of Ormuz.”

Homayoun Falakshahi, an analyst specializing in maritime transport data, suggests that the likelihood of Iran closing the Strait is low, as it would severely impact its own exports, particularly to China. He also points out that this action would affect regional powers such as Qatar, the United Arab Emirates, and Saudi Arabia, who have normalized relationships with Iran.

Risks Beyond a Complete Blockade

Even without a total blockade, the escalating conflict in the region poses a risk to maritime traffic. The Iran-Iraq war in the 1980s and the resulting tanker attacks increased oil transport costs,and the conflict between Israel and Iran has increased fears in the maritime sector.

Adel El Gammal, professor of energy geopolitics at the Free University of Belgium, said that more companies are hesitant to charter boats in the region, which “will irreparably have an impact on gas and oil supplies and therefore create tensions on prices.”

Despite the concerns, the number of cargo ships using the Strait increased from 116 on Thursday to 111 on Sunday. Bimco, the largest association of maritime carriers, has recorded only a “modest decrease” in traffic.

Jakob Larsen, head of security at Bimco, stated that while most companies are continuing their operations, some are choosing to avoid the Strait.He also noted that increased security threats often lead to higher freight costs and crew salaries, creating a financial incentive for some to take the risk.

According to AIE, any prolonged crisis in the Strait of Ormuz would disrupt exports from key Gulf producers such as Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, and Qatar.

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A satellite photo of the Strait of Ormuz and the Gulf of Oman, taken by the Satellite Terra de la NASA, on February 5, 2025. (NASA EARTH OBSERVATORY / AFP)

The image vividly shows the Strait of Hormuz and the Gulf of Oman, captured by the NASA Terra satellite on February 5, 2025.

Did you know?-The Strait of Hormuz is one of the world’s moast strategically crucial waterways. Its narrow width makes it easily susceptible to closure or disruption,which could have major global economic consequences.

Iran’s Threats and Strategic posturing

Iran has a history of leveraging its position over the Strait of Hormuz to influence international affairs. In 2011, Iran threatened to halt oil transit through the Strait if sanctions were imposed over its uranium enrichment program. This threat was repeated in 2019, following the U.S. withdrawal from the Iranian nuclear agreement.

Sardar Esmail Kowsari, a commander of the revolution guards and deputy of Tehran, mentioned that closing the Strait was “under study.” He emphasized that all options are on the table, including a military response.

Reader question:-How do you think the international community should respond to threats against the Strait of Hormuz, balancing economic stability with regional security concerns? share your thoughts below.

Market Volatility and Analyst Perspectives

Oil markets have experienced fluctuating prices, reflecting the uncertainty. On Monday, prices dipped to $71 per barrel after exceeding $75 on Friday. Michael Wan of MUFG Bank noted that the market lull on Monday was due to reports that Iran was open to negotiations.Wan also said, “the latest information still suggests that there has been no physical disruption of the world supply or impact on the Strait of Ormuz.”

Homayoun Falakshahi, an analyst specializing in maritime transport data, suggests that the likelihood of Iran closing the Strait is low, as it would severely impact its own exports, notably to China. He also points out that this action would affect regional powers such as Qatar, the United Arab Emirates, and Saudi Arabia, who have normalized relationships with Iran.

Risks Beyond a Complete Blockade

Even without a total blockade, the escalating conflict in the region poses a risk to maritime traffic. The Iran-Iraq war in the 1980s and the resulting tanker attacks increased oil transport costs,and the conflict between Israel and Iran has increased fears in the maritime sector.

Adel El Gammal, professor of energy geopolitics at the Free University of Belgium, said that more companies are hesitant to charter boats in the region, which “will irreparably have an impact on gas and oil supplies and thus create tensions on prices.”

Despite the concerns, the number of cargo ships using the Strait increased from 116 on Thursday to 111 on Sunday. Bimco, the largest association of maritime carriers, has recorded only a “modest decrease” in traffic.

Jakob Larsen, head of security at bimco, stated that while most companies are continuing their operations, some are choosing to avoid the Strait.He also noted that increased security threats often lead to higher freight costs and crew salaries, creating a financial incentive for some to take the risk.

According to AIE,any prolonged crisis in the Strait of Ormuz would disrupt exports from key Gulf producers such as Saudi Arabia,the United Arab Emirates,Kuwait,Iraq,and Qatar.

Mitigating Risks and Adapting to Uncertainty

The situation in the Strait of Hormuz is complex, with risks extending beyond a potential blockade. As tensions between Iran and Israel escalate, oil prices and global trade face increased uncertainty. The decisions made by shipping companies, governments, and international organizations will play a critical role in shaping the future.

While most companies continue operations through the Strait, the cost of doing so is rising. Businesses must balance the economic imperative of maintaining supply chains with the increased risks of operating in a volatile region. This involves more than just navigating the narrow waterway.

Maritime businesses are assessing their risk exposure and implementing various mitigation strategies. Let’s explore some of these adjustments being made in the face of geopolitical tensions.

Strategies for Navigating the Uncertainties

The risks in the Strait of Hormuz are not just about a complete closure. Thay encompass:

• Elevated Insurance Premiums: Due to the increased threat of attacks.
• Security Costs: Including armed guards on board ships.
• Crew salaries: Higher pay for working in a hazardous area.
• Reduced Ship Speed: To minimize the time vulnerable to attacks.
• diversion of Routes: At the expense of added time and fuel costs.

Actionable Steps for Businesses

• Risk Assessment: Conduct thorough risk assessments, incorporating security, insurance and route planning.
• Route Planning: Evaluate alternative routes, even if costly to provide options in the event of any escalation.
• Insurance Review: Review insurance policies to ensure thorough coverage against potential threats, including war risk insurance.
• Security Protocols: Enhanced security protocols with armed guards, and security escorts.
• Interaction: Stay updated; maintain close communication with industry and government intelligence.
• Emergency Response: Develop contingency plans for potential incidents.

Myth vs. Fact: The strait of Hormuz

Misinformation and exaggerated threats can amplify market volatility. It’s crucial to distinguish between reality and speculation.

• Myth: Closing the Strait would immediately halt all oil exports.
• Fact: While a closure would be hugely disruptive, strategic reserves and alternative supply routes would provide some buffer. Some routes may still be available to other countries.
• Myth: All shipping companies are avoiding the Strait.
• Fact: While some are, most continue operations, albeit with increased caution.
• Myth: The threat is solely from Iran.
• Fact: Multiple actors and non-state groups could pose threats in the region.

Frequently Asked Questions

Here are some common questions regarding the Strait of hormuz.

Q: What is the impact of increasing security threats?

A: Increased security threats often have a ripple effect, leading to higher freight costs and crew salaries. This makes it a complex interplay of economics and risk.

Q: What are the potential consequences of a prolonged crisis?

A: A prolonged crisis can disrupt exports from key Gulf producers, affecting global energy supplies, with rising prices being the most immediate concern.

Q: Can alternative routes mitigate the impact of disruption?

A: While alternatives exist, they often involve longer transit times and increased costs, impacting supply chain efficiency.

Q: Who will feel the impact most strongly from these tensions?

A: Oil importing nations and businesses reliant on energy will be deeply and quickly impacted by rising prices and supply chain disruptions.