Will Iran choke the global oil supply by closing the Strait of Hormuz? Recent US military actions against Iran’s nuclear sites have highlighted Tehran’s potential to disrupt oil commerce, particularly via the strategically vital Strait of Hormuz.Experts consider a complete blockade of Hormuz lasting beyond several days highly unlikely. Such an action would severely restrict oil movement and could drive prices up by nearly 70%, according to JPMorgan & Co. analysts, triggering worldwide inflationary pressures and economic slowdown.Whilst Iran has repeatedly issued warnings about closing the Strait of Hormuz, through which 20% of global oil passes daily, it also has various measured options to target adversaries whilst safeguarding relationships with allies, particularly China, its primary oil customer.Iran might refrain from disrupting oil transportation, considering historical instances where such threats did not materialise. Tehran must consider several factors: potential counterstrikes on its energy facilities, possible Chinese disapproval of flow disruptions, and risks to its own oil shipments, which are vital for Chinese supply.Additionally, the ongoing conflict with Israel and the US might have reduced Iran’s capability to target oil tankers and regional oil infrastructure effectively. Furthermore, Western nations would likely respond decisively to protect maritime passage through this crucial waterway if threatened.
Using Strait of Hormuz for Retaliation
Iran’s strategic position along the Hormuz coastline provides various retaliatory possibilities against US strikes. These range from minor disruptions to maritime traffic to severe actions, including potential drone strikes, mine placement, or explosive attacks on tankers that could render the strait unusable for commercial vessels, according to a Bloomberg report.“If Iran were to decide to begin to take action in the Straits of Hormuz, there’s a wide range of things that can look like,” Daniel Sternoff, non-resident fellow at the Columbia University’s Center on Global Energy Policy, said on the center’s podcast before the US attack happened. “We can kind of draw a huge set of scenarios and unknowns which have all sorts of consequences.”Also Read | ‘Highest in two years’: India increases oil imports from Russia, US amidst Iran-Israel war; why it’s about strategic positioning, not panicIran could readily escalate its interference with merchant vessels passing through the Strait of Hormuz. Previously, Iranian authorities have compelled ships to enter their waters and detained vessels, causing significant distress amongst crew members, the report said.The Combined Maritime Forces, a naval alliance based in Bahrain, has noted that Iranian small boats have been approaching commercial vessels regularly. The organisation cautions that current diplomatic tensions heighten the risks associated with these encounters.Should Iran adopt more aggressive tactics, merchant vessels might need to travel in groups under Western naval protection. Whilst this would significantly reduce shipping efficiency, oil supplies should remain stable, provided sufficient tanker capacity exists.Since June 13, GPS signal interference has significantly affected maritime operations, impacting approximately 1,000 vessels daily.The navigation difficulties caused by this disruption contributed to a collision involving oil tankers on Tuesday. Despite one tanker’s owner dismissing any connection to regional tensions, the incident’s occurrence shortly after Israel’s military actions raised questions.The deployment of sea mines could substantially affect maritime traffic through the strait, though this strategy might prove counterproductive as it would also endanger Iranian vessels.Daily monitoring by Bloomberg shows 110-120 vessels exceeding 10,000 deadweight tons traversing Hormuz, with operations continuing normally through Friday.
Houthi Way
Iran might adopt similar strategies to those employed by Houthi forces who have conducted attacks on commercial vessels in the Red Sea amidst the Israel-Gaza conflict.The Houthi deployment of ballistic missiles, alongside sea and air drones against commercial vessels, has compelled shipping companies to navigate around Africa rather than traverse the Suez Canal. This has resulted in commercial vessel movement declining approximately 70% compared to 2022-2023 figures.Although the militants claimed to focus on vessels connected to the US, UK or Israel, these associations were often indirect, yet the attacks effectively discouraged maritime traffic across all categories. Vessels traversing the Strait of Hormuz lack alternative routes, creating a distinct risk assessment scenario. Nevertheless, should Iran target sufficient vessels, the impact on supply chains could prove substantial.Also Read | Iran-Israel war & US bombings: Should possible Strait of Hormuz closure worry India about its oil supply? Explained in 10 points
Choking Oil Supply: Regional Impact
Iran’s capability to affect oil supply extends beyond the Strait of Hormuz.The Iraqi Basra oil installations are situated near the Iranian frontier. In 2019, Iran faced accusations from Saudi Arabia regarding an assault on Abqaiq’s oil processing facilities, which disrupted approximately 7% of global oil production.Experts indicate that whilst retaliatory actions targeting oil infrastructure cannot be dismissed, such escalation would prove detrimental to all parties involved.Satellite observations show increased crude exports from Iran’s principal export facility at Kharg Island, where storage has reached capacity.Should this facility become a target, Iran would suffer significant revenue losses, potentially prompting reciprocal strikes.Such circumstances would primarily benefit speculative oil traders and non-regional producers. Iran’s improved diplomatic ties with neighbouring states could deteriorate if it pursues aggressive actions.
Severe possibility: Complete Blockade of Strait of Hormuz
The most severe possibility involves a sustained, complete closure of Hormuz. The region exports approximately 20 million barrels daily of crude oil and refined products, with no alternative maritime routes available.OPEC+ nations Saudi Arabia and UAE possess surplus capacity but face significant constraints in finding alternative routes to Hormuz for their oil exports.Also Read | Iran-Israel conflict: India keeping tab on Chabahar Port, International North-South Transport Corridor; why it’s importantNavin Kumar from Drewry maritime consultancy said according to Bloomberg: “We don’t believe the Strait of Hormuz is going to close under any scenario. Maybe for a day or two, but it’s unlikely there will be any closure for a week or more. It’s highly unlikely.”Iran’s historical threats to disrupt transit have remained unfulfilled, and questions persist about their military capabilities to execute such actions. US Vice-President JD Vance cautioned that this would prove economically detrimental for Iran.Amrita Sen of Energy Aspects Ltd remarked: “You are looking at pretty much the biggest disruption to trade flows we’ve had in decades — prices would sky-rocket.”Whilst oil prices would certainly rise, the length of any disruption would be crucial.Global consuming nations maintain substantial reserves, with approximately 5.8 billion barrels of crude and fuel in storage, according to Bloomberg’s industry data, excluding non-OECD nations’ refined fuel reserves. Annual petroleum flow through Hormuz amounts to 7.3 billion barrels, providing adequate protection even in extreme circumstances.
