Iran & Strait of Hormuz: Shipping Under Threat?

Maritime traffic through the Strait of Hormuz has almost completely stopped following recent strikes against Iran by the United States and Israel. The disruption to this vital waterway, a key route for oil, gas, and other commodities, has already caused a surge in energy prices.

Strait of Hormuz Disruption Threatens Global Inflation

Iran, which sits above the strategic Strait of Hormuz, has targeted tankers in the area and warned ships they “could be at risk from missiles or rogue drones,” according to Iran’s semi-official Fars news agency.

Oil and gas prices have surged since the start of the conflict due to the collapse in Hormuz transits and reduced crude output from Gulf producers as storage tanks fill up.

The US and France are considering providing naval escorts for tankers crossing the strait, though neither plans to begin operations immediately. Prolonged disruption to exports from the region could lead to a wave of global inflation.

What is the Significance of the Strait of Hormuz?

The Strait of Hormuz, located between Iran to the north and the United Arab Emirates and Oman to the south, connects the Persian Gulf to the Indian Ocean. It is approximately 160km long and 34km wide at its narrowest point, with shipping lanes in each direction only 3km wide.

The strait handles about a quarter of the world’s seaborne oil trade and is essential for Saudi Arabia, Iraq, Iran, Kuwait, Bahrain, Qatar, and the UAE, who all ship crude through it, with the majority going to Asia.

Gulf countries also rely on refineries within the region that produce diesel, naphtha (used to make plastics and gasoline), and other petroleum products exported globally via the strait.

The waterway is also crucial for the liquefied natural gas (LNG) market, with around a fifth of the world’s supply – mostly from Qatar – passing through the channel last year. Asian countries are the primary buyers of this superchilled fuel.

Beyond energy, the Strait of Hormuz is a choke point for exports of aluminium and agricultural products, including sugar and fertiliser. The disruption poses a risk to crop prices and food inflation as farmers in the Northern Hemisphere prepare to apply nutrients to their fields.