Current tensions in the Middle East, particularly involving Iran, have stirred anxiety among investors, causing oil futures to leap nearly 10% since hostilities began between Israel and the US. The strategic Strait of Hormuz, controlled by Iran, is vital for global oil transportation, with around 20 million barrels, or a fifth of the world’s daily oil production, passing through it. This narrow waterway, 33.7 kilometres wide at its narrowest point, serves as the sole conduit for oil from the Persian Gulf to international markets.
Following US airstrikes on Iran’s nuclear sites, Brent crude prices spiked above $80 per barrel, the highest since January, although they later retreated to around $76.49. The potential for increased oil prices hinges on Iran’s response to the strikes, with some analysts predicting that any disruption to the Strait could push prices towards $100 per barrel.
High-ranking Iranian officials have already suggested the possibility of closing the Strait, emphasising its significance for the global economy. Iran’s geographic dominance in this crucial shipping lane presents it with leverage to trigger market shocks, drive up prices, and impact economies worldwide.
Despite the threats, some experts, like Vandana Hari of Vanda Insights, view the closure of the Strait as an unlikely prospect. The enhanced presence of the US Navy serves as both a deterrent and a potential response mechanism against any Iranian blockades. Moreover, Iran may face severe consequences from its neighbouring oil-producing countries and key markets like China, should it take aggressive actions.
A closure of the Strait of Hormuz would severely impact China and other Asian nations that rely on oil and gas supplies from this passage, with EIA estimates indicating that a significant portion of crude and liquefied natural gas exports through the Strait is bound for Asian nations. China, in particular, continues to be Iran’s largest purchaser, underscoring the economic implications of any unilateral decisions by Tehran.
Throughout the ongoing tensions, China has reiterated the importance of maintaining security in the Gulf region to protect international trade, urging global stakeholders to work towards de-escalation. Meanwhile, India is attempting to reassure its investors, stating it has diversified its energy supplies and can maintain stability in fuel delivery, despite some dependency on the Strait.
In summary, while the situation remains volatile, both geopolitical factors and economic interdependencies are creating a complex landscape in which actions taken by Iran could have far-reaching repercussions for global oil markets.