Is Closing the Strait of Hormuz the ‘Apocalyptic’ Scenario for the Oil Market?

Is Closing the Strait of Hormuz the ‘Apocalyptic’ Scenario for the Oil Market? [[{“value”:”

The Strait of Hormuz, a narrow 21-mile-wide passage between Iran and Oman, is the world’s most critical chokepoint for oil and liquefied natural gas (LNG) trade. Often described as the “jugular vein” of global energy, it facilitates the flow of roughly 20% of the world’s oil and a quarter of its LNG. Recent geopolitical tensions, including speculation about Iran’s potential to disrupt or close the strait, have reignited debates about whether such an event would trigger an “apocalyptic” scenario for global energy markets. This article examines the volumes of oil and LNG transiting the strait, the key countries and customers involved, and the potential economic fallout of a closure.

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Oil and LNG Volumes Through the Strait

According to recent data, approximately 17–21 million barrels per day (bpd) of crude oil and refined products pass through the Strait of Hormuz, accounting for 20–30% of global oil supply. In 2022, the strait handled an average of 21 million bpd, representing 21% of global crude trade. This includes exports primarily from Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, and Iran, with smaller contributions from Qatar and Bahrain.

LNG flows are equally significant. The strait facilitates the transit of about 25% of global LNG, predominantly from Qatar, the world’s largest LNG exporter. In 2023, Qatar exported approximately 80 million metric tons of LNG, much of which passed through Hormuz to reach markets in Asia and Europe. Smaller volumes of LNG from the UAE also traverse the strait.

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Key Countries and Customers

The oil and LNG flowing through the Strait of Hormuz serve a diverse set of customers, with Asia as the primary destination. Key importing countries include:

China: The largest buyer of Gulf oil, China’s demand has surged as U.S. and European imports have declined. A disruption would hit China hardest, given its reliance on Middle Eastern crude.
India: Heavily dependent on Gulf oil, India imports significant volumes from Saudi Arabia, Iraq, and the UAE.
Japan and South Korea: Both nations rely on the strait for stable oil and LNG supplies, with Qatar as a major LNG provider.
Europe: While Europe’s dependence on Gulf oil has decreased, countries like Germany and France still import LNG from Qatar via Hormuz.
Other Asian Markets: Singapore, Thailand, and Taiwan are notable consumers of both oil and LNG from the region.

Exporting countries, particularly Saudi Arabia (7–8 million bpd), Iraq (3.5–4 million bpd), and the UAE (2.5–3 million bpd), rely on the strait to access global markets. Qatar’s LNG exports, critical to its economy, are almost entirely dependent on this route. Iran, while a smaller exporter due to sanctions, also uses the strait and wields significant influence over its security.

The “Apocalyptic” Scenario: What Happens if the Strait Closes?

A closure of the Strait of Hormuz, whether through military action, sabotage, or a blockade, would have profound implications. Analysts estimate that a complete shutdown could remove 17–20 million bpd of oil and 25% of global LNG from the market, triggering an immediate supply shock. Crude oil prices could spike to $120–$250 per barrel, depending on the duration of the disruption, with some projections suggesting even higher peaks. It appears that geopolitical issues influence the $80 to $90 range in the formula, but after excluding Iranian crude oil, the price increases.

The economic ripple effects would be staggering:

Global Inflation: At $150 per barrel, the daily value of oil transiting the strait—currently $1.36 billion at $80 per barrel—would nearly double, driving up fuel, transportation, and manufacturing costs.
Recession Risks: Major economies, particularly in Asia, could face stagflation as energy costs soar and supply chains falter. China and India, with limited domestic oil reserves, would be especially vulnerable.
Market Chaos: A closure would dwarf the 1973 Arab oil embargo in impact, potentially crashing equity markets and disrupting global trade.
LNG Supply Gaps: Europe, already grappling with energy security, would face LNG shortages, exacerbating winter heating crises. Asia’s industrial hubs, like Japan and South Korea, would struggle to secure alternatives.

Geopolitical and Market Dynamics

Iran’s ability to close the strait, even temporarily, stems from its strategic position and military capabilities, including mines, fast-attack boats, and anti-ship missiles. However, such an action would come at a steep cost to Iran itself, as it relies on the strait for its own oil exports. Posts on X suggest that Iran’s influence in the region is waning, with China now bearing the brunt of any disruption due to its heavy reliance on Gulf oil. Meanwhile, U.S. producers could benefit from higher global prices, given their reduced dependence on Middle Eastern imports.

Alternative routes, such as Saudi Arabia’s East-West Pipeline or the UAE’s Fujairah export terminal, could mitigate some losses but lack the capacity to replace the strait’s volume. Tanker rerouting around Africa would add weeks to delivery times and billions in costs, further straining markets.

Is It Truly “Apocalyptic”?

While the term “apocalyptic” captures the severity of a potential closure, it may overstate the long-term impact. Global markets have adapted to past disruptions, and strategic petroleum reserves could cushion the blow for weeks. However, a prolonged closure—lasting months—would test the resilience of even the most prepared economies. The real risk lies in the cascading effects: geopolitical escalation, trade wars, and a potential restructuring of global energy alliances.

Conclusion

The Strait of Hormuz remains the linchpin of global energy security, carrying 17–21 million bpd of oil and 25% of LNG to customers across Asia, Europe, and beyond. A closure would unleash unprecedented economic turmoil, with oil prices potentially doubling and inflation surging worldwide. While not necessarily “apocalyptic,” the fallout would be severe, particularly for import-dependent nations like China and India. As tensions in the Middle East simmer, the world must grapple with the fragility of this vital artery and the urgent need for diversified energy routes and sources.

Energy News Beat will continue to monitor developments in the Strait of Hormuz and their implications for global energy markets.