What Happens if Iran Shuts Down the Strait of Hormuz?
The analytics firm’s Commodities at Sea study also recorded outflows of oil and products averaging about 20.4 million barrels per day in February so far, slightly below January levels — evidence that geopolitical tensions alone can slow shipments before a physical disruption occurs.
“The risk of Hormuz is not only about closure but also fleet productivity. If Iran escalates by seizing tankers or using drones to threaten commercial traffic, travel times and possibly costs of Middle East oil exports would increase further,” S&P Global CERA analysts said.
Several shipping companies have already signaled that they are avoiding the Strait of Hormuz and expect delays and rescheduling of shipments.
What would closing the strait mean?
There is no alternative export system on a comparable scale. Saudi Arabia and the United Arab Emirates operate bypass pipelines, but these cover only part of Gulf flows, while Iraq, Kuwait and Qatar lack significant alternatives.
If the strait were officially closed, most Gulf oil exports would almost immediately be cut off from the world. Even if Saudi Arabia and the United Arab Emirates pushed their alternative pipelines to the maximum, analysts estimate that about two-thirds of Gulf exports would remain blocked.
LNG markets would also be affected. Qatar, the world’s largest exporter of liquefied natural gas – a form of supercooled natural gas shipped by tanker – relies almost entirely on the Strait of Hormuz to export its fuel.
If the route were blocked, Asian buyers could lose their main suppliers within days. Asian economies such as Japan, South Korea, China and India rely heavily on imported LNG to generate electricity.
Getting oil elsewhere, such as in the Atlantic, would result in longer transportation times and higher costs, which could drive prices even higher.
How it could affect consumers
Historical models suggest that a sudden loss of Gulf supply could send oil prices sharply higher.
If that happens, the consequences would likely quickly hit consumers around the world: higher gasoline prices, more expensive plane tickets, and rising transportation costs that are reflected in the price of food and goods.
Financial markets typically react even before physical shortages emerge, with oil futures rising, transportation stocks weakening and the currencies of major energy exporters strengthening as traders price in the risk of disruption.
Strategic oil reserves could soften the blow, but releases take time and cannot fully replace Gulf grades of crude.
In the Gulf countries, the cessation of exports would quickly put a strain on public finances. Countries like Iraq, Kuwait and Qatar rely heavily on oil revenues to finance their public spending. If shipments stopped, storage facilities could fill up quickly, forcing producers to reduce production and lose revenue.
The effects of shipping would extend beyond oil. Tanker rerouting, insurance repricing and naval hazard zones tend to increase freight rates for bulk commodities and container shipping, impacting global logistics.
This story was originally published on WIRED Middle East.
