Yesterday it was first reported that Iran is effectively blocking the Strait of Hormuz, and although it is important to remember that the United States is concentrating immense naval military power in the region, which makes the actual implementation of the closure difficult, on-the-ground data indicates that structural changes are already occurring in the region.
According to recent reports, although ship movement has not completely ceased, most ships have reduced speed to zero and are currently in a waiting position for what's next.
Although the United States attacked and destroyed one destroyer, meanwhile on the ground, the Iranian navy is still active, and this morning it was already reported that a civilian ship was attacked, with at least four injuries reported.
Meaning, Iran is indeed enforcing the closure of the central route.
Now, the world's eyes are on the United States and the immense military force in the region, hoping for an escalation of activity and the opening of the central route.
Meanwhile, a deep dive into the route and its economic implications.
Strait of Hormuz - a global bottleneck.
First of all, where is it?
The Strait of Hormuz is located between Iran and Oman, connecting the Persian Gulf to the Gulf of Oman and the Arabian Sea. A narrow but extremely critical maritime passage.
Why is it so important?
Approximately 20% of the world's daily crude oil consumption passes through it - about a fifth of the global amount!
- It is the only maritime passage for oil exports from countries such as:
- Kuwait
- Qatar
- Bahrain
- United Arab Emirates
- A significant part of Saudi Arabia
The essential question - can it be bypassed?
While there are several overland oil pipelines, they are limited in scope: according to estimates, only 6.5–7.5 million barrels per day can be transported through them, compared to a maritime passage of approximately 20 million barrels per day,
This means a decrease of about 65% in transport capacity.
This represents an immediate impact on about 13% of global supply!
What are the implications?
According to J.P. Morgan's forecast, a closure of the Strait could push oil prices to $120 - 130 per barrel and trigger a chain reaction in global energy, stock, inflation, and currency markets.
The Strait of Hormuz is essentially a global vulnerability.
Any threat to the passage of goods through it - such as a military maneuver or a blockade by Iran - could shake markets and cause a sharp rise in energy and oil prices worldwide.
Another point to consider
Rising oil prices will affect inflation in the United States - and can indirectly influence interest rate expectations as well.
And this could lead to US inflation rising towards 5%.
According to a Federal Reserve study, every $10 increase in oil price can raise inflation by 20 basis points.
Who truly depends on the Strait of Hormuz?
It's not what you might think -
EIA data clarifies the destination breakdown of oil passing through the Strait of Hormuz:
84% of crude oil and condensate, 83% of liquefied natural gas (LNG) - reached Asian markets.
The main destinations in Asia: China, India, Japan, South Korea
Together they receive about 69% of the total oil flow through the Strait.
Europe?
United States?
Israel?
Almost not in the picture.
Europe received a very small share of the oil passing through the Strait of Hormuz.
Meaning, a blockade of the Strait by Iran will not necessarily prevent oil from reaching Europe - but rather divert geographical flows:
Gulf producers will redirect oil to Asia and Europe will import from other sources: US, Canada, African countries, Latin America
So what is the main insight?
While a blockade of the Strait of Hormuz may shake the global market, it will not necessarily lead to a physical shortage - but rather to shifts in market directions and higher logistical costs.
However, the mere disruption to the stability of maritime transport could push energy prices higher in the short term - due to geopolitical risks, marine insurance, and general uncertainty.
In summary:
Asia is the main destination for oil passing through the Strait of Hormuz.
Europe will be able to diversify sources, but will pay more.
A temporary disruption will affect global prices, even if not availability itself.
We will continue to monitor and update.