What to know about the Strait of Hormuz, a key passageway essential for global energy supply

Oil Prices Surge as Iran Conflict Disrupts Critical Strait of Hormuz Shipping

Oil prices jumped sharply on Monday as the escalating conflict involving Iran has severely disrupted tanker traffic through the Strait of Hormuz, a development that underscores the waterway’s critical importance to global oil supplies.

The narrow Strait of Hormuz, connecting the Persian Gulf to the Gulf of Oman, serves as the transit route for approximately one-fifth of the world’s oil. Bordering Iran to the north, the waterway is a vital channel for tankers carrying oil and gas from major producing nations including Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates, and Iran itself. The majority of these shipments are destined for Asian markets.

“The scale of what is at stake cannot be overstated,” warned Hakan Kaya, senior portfolio manager at investment management firm Neuberger Berman. Kaya explained that while the oil industry could absorb a partial slowdown lasting one to two weeks, a more extensive closure of a month or longer would likely push crude oil prices “well into triple digits” from Monday’s level of around $70 per barrel. European natural gas prices could potentially surge “toward or above the crisis levels seen in 2022.”

Though not officially closed, tanker traffic through the strait has dropped dramatically according to data and analytics firm Kpler. The UK Maritime Trade Operations Center has reported attacks on several vessels in the vicinity and warned of increased electronic interference with ship tracking systems. In one confirmed incident, a bomb-carrying drone boat struck a Marshall Islands-flagged oil tanker in the Gulf of Oman, killing one crew member, according to Omani authorities.

Iran appears to be behind multiple attacks and has been issuing threats to vessels approaching the strait. This marks a significant escalation compared to previous tensions. In mid-February, Iran temporarily restricted access to parts of the strait for what it claimed was a military exercise, causing oil prices to surge approximately 6% in the following days.

The waterway, about 33 kilometers (21 miles) wide at its narrowest point, has long been strategically significant. Historically, the strait facilitated trade of ceramics, ivory, silk, and textiles from China throughout the region. In modern times, it has become indispensable for global energy markets, with supertankers transporting oil and gas from the Middle East’s major producers.

While Saudi Arabia and the UAE do have pipeline infrastructure that could bypass the strait, the U.S. Energy Information Administration notes that “most volumes that transit the strait have no alternative means of exiting the region.” This logistical reality explains why threats to the passage have consistently triggered spikes in global energy prices, including during the Israel-Iran tensions in June.

The current situation represents the most significant disruption to the strait since the Iran-Iraq war in the 1980s, when both sides attacked tankers and used naval mines to periodically halt traffic entirely. Despite numerous threats over the decades, Iran has generally refrained from completely closing the waterway, even during last year’s 12-day conflict when Israel and the United States bombarded Iran’s key nuclear and military installations.

Energy analysts are closely monitoring the situation, as any prolonged disruption could have cascading effects on global oil supplies and prices. For importing nations, particularly in Asia where most Persian Gulf oil is shipped, the stakes are especially high as alternative supply routes would likely involve significantly higher transportation costs and logistical challenges.

The disruption comes at a time when global oil markets were otherwise relatively balanced, making the geopolitical premium now being added to crude prices a significant concern for energy-dependent economies still recovering from previous price shocks.