As tensions rise in West Asia with intense clashes between Iran and Israel, oil markets are jittery whether the war will spill over to the Strait of Hormuz, the chokepoint that drives one-fifth of the global crude oil trade. Blocking the strait could lead to heightened volatility in crude oil prices and a shortage can push prices to $100 a barrel.
For instance, the US EIA said that following the recent tensions in the region, the price of Brent crude oil increased from $69 per barrel on June 12 to $74 on June 13, which highlights the importance of the strait to global oil supplies.
What is Strait of Hormuz?
The 90 nautical miles (167 km) long Strait of Hormuz, which is located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The strait is one of the world’s most important oil chokepoints. Large volumes of oil flow through the strait, and very few alternative options exist to move oil out of the strait if it is closed. More than 85 per cent of crude oil flowing out of the Persian Gulf travels through the strait.
In 2024, oil flow through the strait averaged 20 million barrels per day (b/d), or the equivalent of about 20 per cent of global petroleum liquids consumption. In the first quarter of 2025, total oil flows through the Strait of Hormuz remained relatively flat compared with 2024, says the US EIA.
Why is it important for global oil trade?
Flows through the Strait of Hormuz in 2024 and the first quarter of 2025 made up more than one-quarter of total global seaborne oil trade and about one-fifth of global oil and petroleum product consumption. In addition, around one-fifth of global liquefied natural gas (LNG) trade also transited the Strait of Hormuz in 2024, primarily from Qatar. Around 3,000 vessels cross the strait every month.
Based on tanker tracking data published by Vortexa, Saudi Arabia moves more crude oil and condensate through the Strait of Hormuz than any other country. In 2024, exports of crude and condensate from Saudi Arabia accounted for 38 per cent of total Hormuz crude flows (5.5 million b/d), as per the US EIA.
It is estimated that 84 per cent of the crude oil and condensate and 83 per cent of the liquefied natural gas (LNG) that moved through the Strait of Hormuz went to Asian markets in 2024. China, India, Japan, and South Korea were the top destinations for crude oil moving through the Strait of Hormuz to Asia, accounting for a combined 69 per cent of all Hormuz crude oil and condensate flows in 2024. These markets would likely be most affected by supply disruptions at Hormuz.
What are its alternatives?
Most volumes that transit the strait have no alternative means of exiting the region, although there are some pipeline alternatives that can avoid the Strait of Hormuz.
Saudi Arabia and the UAE have some infrastructure in place that can bypass the Strait of Hormuz, which may somewhat mitigate any transit disruptions through the strait.
The pipelines do not typically operate at full capacity, and US EIA estimates that about 2.6 million b/d of capacity from the Saudi and UAE pipelines could be available to bypass the Strait of Hormuz in the event of a supply disruption.
Saudi Aramco operates the 5 million-b/d East-West crude oil pipeline, which runs from the Abqaiq oil processing center near the Persian Gulf to the Yanbu port on the Red Sea.
The UAE also operates a pipeline that bypasses the Strait of Hormuz. This 1.8 million-b/d pipeline links onshore oil fields to the Fujairah export terminal in the Gulf of Oman. Iran inaugurated the Goreh-Jask pipeline and the Jask export terminal on the Gulf of Oman (avoiding the Strait of Hormuz) with a single export cargo in July 2021.
What if Strait of Hormuz is closed?
Closing Strait of Hormuz will have a ripple effect across the global oil and gas markets. The closing will lead to a surge in crude oil and LNG prices considering the volume of cargos that traverse through the channel. Major supplies such as Saudi Arabia, Iran, the UAE, Qatar and Iraq use it to export crude oil and LNG, while major consumers such as China, India and Japan depend on it for supplies.
Blocking the straits of Hormuz will also lead to higher freight rates as ships will take the longer routes, such as via the Cape of Good Hope, to transport supplies. This will lead to higher freight rates and longer delivery schedules.
What will be the impact of closing the strait on India?
Blocking the strait will impact the movement of oil and gas to Indian ports and would consequently lead to higher prices, which will, in turn, swell up India’s import bill.
The world’s third largest crude oil importer and fourth largest LNG buyer purchases around 40 per cent of its crude and almost half of its imported LNG from the Middle East.
To deal with disruptions, India has already diversified its crude oil sources from 27 to 40. It is also forging stronger links in South America and North America for oil and gas supplies.
Oil Minister Hardeep Singh Puri has already said that India has sufficient supplies of crude oil and petroleum products. Besides, the situation is being constantly reviewed.