US Politics
Why is the Strait of Hormuz so important? How the US-Iran war created global oil and gas crisis
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The world is facing a major fuel crisis as Iran continues to retain a firm grip over the Strait of Hormuz, a vital shipping route through which one fifth of the world’s oil and gas moves.
One month after the US and Israel launched strikes on Iran, countries across the globe have been affected with soaring costs and strained supplies. An energy emergency was declared in the Philippines on Wednesday as the government warned it had just 45 days until fuel ran out completely.
But despite American overtures towards peace talks and negotiations, Iran has insisted it will continue to stop ships from passing through the Strait.
On Friday the Islamic Revolutionary Guard Corps declared the waterway completely closed, threatening “harsh measures” would be employed against any attempts to transit through.
At least three shipping containers were forced to turn around following the escalation. Oil prices surged in response to the announcement, shooting up to $111 a barrel.
Experts told The Independent that the damage has already been done and that even if the waterway were to open tomorrow, it would take months for the global economy to recover.
The IRGC navy declared “complete control” of the Strait on Wednesday 4 March, days after US-Israeli strikes took out the Islamic Republic’s supreme leader Ayatollah Ali Khamenei on 28 February and threatened to set fire to any ships attempting to pass through the strait.
Below, we look at why the strait is so strategically important and what impact the war is having so far.
Where is the Strait of Hormuz?
The Strait of Hormuz lies between the Persian Gulf to the north and the Gulf of Oman to the south, opening up to the Arabian Sea and beyond to the rest of the world.
It is roughly 100 miles long, but only 21 miles across at its narrowest point.
The land-flanked passage lies in Iran’s territorial waters, but is viewed as an international waterway and is normally open to all ships. It consists of two shipping lanes allowing traffic to pass in opposite directions, each two miles wide, with another two-mile-wide lane separating them.
International law permits countries to exercise control up to 13.8 miles (12 nautical miles) from their coastline. At its narrowest point, the passage comes under both Iranian and Omani control.
Iran lies on one side of the strait, and some of the world’s biggest oil suppliers including Kuwait, Bahrain, Qatar, the UAE, Saudi Arabia and Oman lie across the waters.
What passes through the strait?
It is one of the world’s most important maritime chokepoints, with 20 million barrels of oil passing through it each day – one-fifth of global oil consumption – and up to one-third of the world’s supply of liquefied natural gas.
This amounts to over 500 million barrels of oil and 6 million tonnes of gas every month, according to Lloyd’s List. Much of this is exported to Asian markets, including China (Iran’s only remaining oil customer), India and Japan.
It is the route used by supertankers carrying oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the UAE and Iran.
Around 3,000 shipping vessels pass through the passage every month, including oil tankers, liquefied natural gas containers, and cargo vessels, according to Lloyd’s List. This amounts to more than 30,000 ships every year.
While there are pipelines in Saudi Arabia and the UAE that can transport oil, the US Energy Information Administration says that “most volumes that transit the strait have no alternative means of exiting the region”.
On 18 February, Iran closed the Middle Eastern waterway for the first time since the 1980s as Iranian troops took part in live-fire military exercises.
Iran had not threatened to close the passage even during its 12-day war with Israel last June, when US-Israeli strikes took out some of the country’s key nuclear and military sites.
A global trade bottleneck as missiles rain down
Passage through the waterway has almost ground to a halt, creating a trade bottleneck, since the current war broke out. At last 16 vessels have been hit, according to UK Maritime Trade Operations.
Before the outbreak of hostilities, around 138 ships were passing through the Strait of Hormuz every day, according to the Joint Maritime Information Center.
However, Lloyd’s Intelligence says that now that is around the number that has transited through the waterway throughout the entire month of March. According to the maritime trade publication, only 100 vessels have exited the Gulf this month and 40 have entered.
A US oil tanker was set on fire early on in the conflict as maritime insurers have pulled insurance cover. At least one Indian crew member was killed on Sunday 1 March, according to Euro News. Several reports from trade publications suggest that others have been injured.
US attacks have spilled over into international waters with the US military torpedoing an Iranian warship in the Indian Ocean, 40 nautical miles off the coast of Sri Lanka on Wednesday 4 March. At least 87 people were killed.
Effects on oil prices and the global economy
The International Energy Agency has warned that the world is facing the worst energy crisis in history. Executive Director Fatih Birol said on Monday that the impact on the global economy could be worse than in the 1970s.
“At that time in each crisis, the world lost about 5 million barrels per day,” he said, according to the Wall Street Journal. “Today we lost 11 million barrels per day so more than two major oil shocks put together.”
Earlier this month, the IEA agreed to release the largest volume of emergency oil reserves in its history to counter the effects on energy markets, with over 400 million barrels of oil made available to members from reserves. It is more than double the 182.7 million barrels released in 2022 following Russia’s invasion of Ukraine.
Even if the Strait of Hormuz were to open tomorrow, experts have warned that the world economy could take months to recover.
“The impact will deepen and be long lasting,” warns Neil Quilliam, an energy policy, geopolitics and foreign affairs specialist at Chatham House.
“The real shock has yet to be fully felt and will materialise when stocks run down. Even if the war were to end tomorrow and the Strait of Hormuz were reopened, world markets would still feel the shock in the months, as it will take at least six months before the Gulf states can begin to produce and export at capacity once again.”
He tells The Independent: “There is going to be a shortage of oil, natural gas and other critical fuels and commodities and there is no easy means to compensate for their loss – and the longer the Strait is Hormuz is effectively closed, the sharper and the longer the pain will be felt by the global economy – and that pain will be felt most acutely in poorer countries, though will be near universal.”