The Strait of Hormuz: How will its closure impact oil prices?

US-Israeli strikes on Iran have triggered retaliatory attacks by Tehran across the Middle East, targeting assets in Israel and several Gulf states, including Qatar, the United Arab Emirates, Kuwait, Bahrain, Jordan, Saudi Arabia, Iraq and Oman, The Daily Mirror writes.

The escalation has pushed the Strait of Hormuz to the centre of global market anxiety. Iranian authorities have signalled a potential shutdown of the narrow waterway, effectively halting commercial transit through one of the world’s most critical energy corridors.

The Strait of Hormuz carries roughly 20 per cent of global oil supplies and energy trade worth about $500bn annually. It is also a transit route for liquefied natural gas, chemicals and fertilisers, raising the risk of wider economic disruption if the closure persists.

Shipping activity has already slowed. A tanker was attacked over the weekend and dozens of vessels, including crude and LNG carriers, have dropped anchor in Gulf waters, pausing transit through the strait.

Iran has repeatedly warned that it could shut the passage in response to military action.

What is the Strait of Hormuz and why does it matter?

The Strait of Hormuz is a narrow but critical shipping route between Iran and Oman and the UAE. It connects the Persian Gulf to the Gulf of Oman and the Arabian Sea.

At its narrowest point, it is 33 kilometres wide. The shipping lanes in each direction are only about 3 kilometres wide, making the passage highly vulnerable to disruption. Despite this, it handles some of the largest crude oil tankers in the world.

The strait is one of the most important energy chokepoints globally. Major Gulf producers rely on it to export oil and gas, while importing countries depend on it to keep supplies flowing.

How much energy moves through it?

Roughly 20 million barrels of oil pass through the Strait of Hormuz each day, representing close to a fifth of global petroleum liquids consumption. The oil comes from Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE.

The strait is also central to global liquefied natural gas trade. Around one-fifth of global LNG shipments transit the corridor, with Qatar accounting for most of that volume.

In 2024, about 84 percent of crude oil and condensate shipments moving through the strait went to Asia. China, India, Japan and South Korea were the largest buyers, together accounting for more than two-thirds of those flows. A similar pattern exists in LNG, with over 80 percent of shipments heading to Asian markets.

What happens if it closes?

A closure would immediately disrupt roughly a fifth of globally traded oil. It would also affect significant shares of jet fuel, gasoline and naphtha supplies that transit the waterway.

Even partial disruption can reduce vessel traffic, delay shipments and raise insurance and freight costs. Tankers may anchor outside the strait if security risks increase, slowing exports from major producers such as Saudi Arabia, Iraq and Qatar.

Oil prices would likely rise sharply in response to any sustained disruption. Markets typically react not only to physical supply losses but also to the risk of future shortages. A prolonged closure could push crude prices significantly higher and keep them elevated.

Higher oil prices would feed into fuel, transport and manufacturing costs worldwide. For energy-importing economies, particularly in Asia, this would increase inflationary pressure. Sustained price increases could also slow economic growth and complicate monetary policy decisions, especially in emerging markets sensitive to commodity swings.

In short, the Strait of Hormuz remains one of the most strategically important waterways in the global economy. Any disruption there would be felt far beyond the Gulf.