Military strikes by Israel and Iran against each other have raised the risks of blocking the Strait of Hormuz, raising fears of blocking international trade and transit corridors and ports of the Strait. Such a possible scenario is being considered by the Iranian authorities because of the “threat to national security”, Esmail Kosari, a member of the Iranian parliament’s committee on national security and foreign policy, said on June 14.
The geostrategic importance of the Strait of Hormuz for the global oil and liquefied natural gas (LNG) trade is since, according to various estimates, about 15-20% of the world’s oil, condensate, and petroleum products and more than 30% of liquefied natural gas pass through the strait. 82% of the volume of oil transported through the strait falls on Asian countries, the rest on Europe. 24% of China’s imported LNG is delivered through the strait.
Even the temporary suspension of the large Iranian seaport of Bandar Abbas in the north of the Strait may cause a collapse in international cargo flows, including from Central Asian countries. Other ports on the coast of the Strait, like Fujairah and major transshipment hubs for transporting goods to Dubai and other countries, may stand down. At the same time, it should be noted that while Saudi Arabia and the UAE can somehow bypass the Strait of Hormuz for part of their oil exports, Qatar and the UAE have no alternatives for exporting LNG.
Therefore, the Strait of Hormuz occupies an important place in the field of financial logistics, since any stop in the flow of ships through the strait will lead to enormous shipping costs around the world, the supply chain may be interrupted and become inefficient. As a result, energy prices on international markets will spiral out of control; countries both dependent on oil supplies and dependent on its sale will face devastating consequences. Thus, according to Iranian experts, the closure of the Strait of Hormuz may lead to a sharp reduction in oil supplies to the market and oil prices may rise to $250 per barrel. According to the Iraqi Foreign Ministry, the closure of the strait could lead to the loss of about 5 million barrels of oil per day from the Persian Gulf and Iraq and an increase in prices to $200–$300 per barrel. JP Morgan estimates that with increased risks to ships, the price of Brent crude oil could jump to $120-130 per barrel.
Currently, oil supplies remain at the same level, although the risk that tensions in the Middle East will significantly worsen the situation is growing. The risks to oil supplies are at the highest level every day due to the uncertainty of resolving the conflict between Iran and Israel. Any further escalation will only bring the oil market closer to actual supply losses.
To summarize, we can state the following.
Firstly. The geopolitical conflict has led to a geo-economic zugzwang, which can have a huge impact on international oil supplies and global trade. International market participants will closely assess the risks not only of shipping in the Strait of Hormuz, but also of trade and transport corridors and flows to the ports of the Strait. The Strait of Hormuz will increasingly become an important strategic leverage for stakeholders.
Secondly. The Strait of Hormuz has great potential for the coordinated development of the global economy. The nodal ports of the Strait are vital transit and logistics chains for international maritime trade, and not only for oil. Therefore, it is necessary that the flow of international vessels through the Strait continues unhindered, international trade through key seaports is carried out without interruption, and a mature view of the situation in the Strait of Hormuz prevails.
* The Institute for Advanced International Studies (IAIS) does not take institutional positions on any issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of the IAIS.
