Will Iran block the Strait of Hormuz, a key shipping route for oil-producing countries? | DW News

Key Concepts:

• Strait of Hormuz: A critical choke point for global oil trade.
• Oil Price Spike: Increase in oil prices due to geopolitical tensions.
• Choke Point: A narrow passage that is vulnerable to disruptions.
• Brent Crude: A major benchmark price for oil.
• Supply Disruption: Interruption in the flow of oil supply.

Strait of Hormuz: A Vital Oil Trade Route

The Strait of Hormuz is a crucial shipping route, handling approximately a quarter of the world's oil trade by sea. It connects the Persian Gulf, vital for Saudi Arabia, to the Gulf of Oman and the Indian Ocean. Top oil-producing countries like the United Arab Emirates (UAE), Oman, and Iran also rely on this route. The strait runs parallel to the Red Sea, further emphasizing its strategic importance.

Vulnerability and Potential for Oil Price Spikes

The Strait of Hormuz is considered a choke point, making it particularly vulnerable to disruptions. Iran has previously threatened to block this trade route, although it has never followed through. If Iran were to act on these threats, oil prices would likely skyrocket, and shipments would be stranded.

Importance Compared to Other Routes

The Strait of Hormuz is the second most important choke point globally. In 2023, 20.9 million barrels of crude oil and petroleum products were transported through it per day. In comparison, the Suez Canal transported only 8.8 million barrels per day.

Alternative Routes and Limitations

Only Saudi Arabia and the UAE possess crude oil pipelines that can bypass the Strait of Hormuz. According to official US sources, these pipelines could accommodate 2.6 million barrels per day.

Potential Impact of Supply Disruption

Charu Chanana, Chief Investment Strategist at Saxo Markets in Singapore, notes that a worst-case scenario, such as the closure of the Strait of Hormuz or a disruption to Iran's 2.1 million barrels per day in exports, could have serious implications for global oil supply and inflation expectations. Warren Peterson, Head of Commodities at energy company, suggests that if disruptions persist towards the end of the year, Brent crude could trade to record highs, surpassing the 2008 record of close to $150 USD.

Iran's Position and Actions

While Iran has threatened to block the Strait of Hormuz, it is unlikely to do so, as it would also prevent Iran from exporting its own crude and petroleum products. However, the passageway is not without problems. In 2024, Iranian naval forces seized an Israeli ship on this route.

Conclusion

The Strait of Hormuz remains a critical artery for global oil trade, and its vulnerability to geopolitical tensions poses a significant risk to oil prices and supply. While a complete closure by Iran is unlikely due to its own economic interests, disruptions and escalations in the region could still lead to substantial price increases and economic instability.