The Strait of Hormuz, for example, is an invaluable maritime artery. It passes down the southern coast of Iran and the northern coast of Oman. This waterway is only 21 miles wide at its narrowest point and serves as the sole shipping route connecting the Persian Gulf to the open ocean. The Strait of Hormuz has tremendous strategic value. It’s vitally important to world trade, particularly for oil-rich Gulf states—including Saudi Arabia, Qatar and Iran.
According to the U.S. Energy Information Administration (EIA), approximately 20 million barrels of oil passed through the Strait of Hormuz each day last year. This shocking number corresponds to approximately one fifth of the liquid petroleum used globally. As a result, any disruption in this critical waterway’s daily operations would send catastrophic ripples through both global oil markets and our broader economic stability.
A Critical Chokepoint
The Strait of Hormuz is on the front page of newspapers every few months, billed as a global oil supply chokepoint. Adam Klein, a maritime security expert and former chairman of the U.S. Commission on Ocean Policy warns, “This strategic chokepoint is extremely vulnerable. He states, “This is a highly vulnerable, highly strategic chokepoint.” The narrowness of the strait compounds its importance; Klein notes, “We’re talking here about a very, very narrow geographic space, and the shipping lanes are even more narrow.”
The implications of potential closure are daunting. And now analysts are sounding the alarm. They caution if Iran makes good on its threats to prevent U.S. warships from passing through the Strait of Hormuz, oil prices would train-wreck. Ramanan Krishnamoorti, a noted energy expert, asserts, “If we see any throttling back of the Strait of Hormuz, we’ll see a massive increase in the price of oil.” Such an increase would be felt deeply by U.S. consumers. Second, it would increase gasoline prices while raising the prices of other imported goods.
Economic Impact on Global Trade
Strait of Hormuz remain freely navigable no matter what happens with Iran, the Straits’ continued accessibility is crucial to any positive global economic forecast. As Jim Reid points out, “The continued accessibility of the Strait of Hormuz is pivotal to the global economic outlook.” The strait provides a lifeline not only for Gulf nations but for countries all across Asia and even Europe.
Last year, an average of 5 million barrels of oil per day passed into China through this very narrow water highway. India averaged less than 2 million barrels per day. The US imported an average of 500,000 bpd through the Strait in 2021. These figures show just how dependent global economies are on this very narrow entrance and exit.
If Iran decides to attack commercial shipping in this region, it will be American consumers that pay the price. This change will raise hackles among countries that have thus far remained neutral to hostile toward Iran’s hardline government. Klein warns that such actions “would turn countries against Iran that have thus far been on the fence.”
Geopolitical Tensions
The geopolitical landscape shifting surrounding the Strait of Hormuz further complicates its strategic importance. The waterway has become a persistent powder keg of regional tensions. Iran has always been in opposition to the United States and Israel in this key area. Iranian threats to seal off access to this strategic corridor can quickly develop into larger clashes that spiral out of control and have widespread implications.
In addition to affecting oil prices, closure or threats to close the Strait could destabilize economies reliant on consistent oil supplies. The consequences would likely ripple far beyond financial markets to produce geopolitical upheaval as countries reevaluate their alliances in relation to Iran.
