Following US and Israeli attacks on Iran, several oil tanker owners, major oil and gas corporations, and traders have halted the transport of crude oil, fuel, and liquefied natural gas (LNG) through the strait of Hormuz. Tehran has also closed this shipping route. Satellite imagery from vessel tracking systems indicates numerous ships are bottlenecked near major ports like Fujairah (UAE), not moving through Hormuz.

An official from the European Union naval mission Aspides stated that vessels received VHF radio signals from the IRGC, instructing that "no vessels are permitted to pass through the strait of Hormuz". The official added that the Iranian government has not yet confirmed the ban.

According to Laura Page, an expert at energy consulting firm Kpler, 14 LNG carriers have either slowed down, turned back, or stopped around the strait. This number could increase, posing a risk to Qatar's LNG exports.

Location of the strait of Hormuz and surrounding countries. Graphics: NASA

The strait of Hormuz, situated between Oman and Iran, connects the Persian Gulf to the north, the Gulf of Oman to the south, and further to the Arabian Sea. Last year, over 14 million barrels of crude oil flowed through this strait daily, accounting for one-third of the world's total seaborne fuel exports, according to Kpler data. Approximately three-quarters of this oil was destined for China, India, Japan, and South Korea. Notably, one-half of China's crude oil imports pass through this strait.

OPEC members such as Saudi Arabia, Iran, UAE, Kuwait, and Iraq export most of their crude oil via this route. Qatar, one of the world's largest LNG exporters, also transports nearly all its liquefied natural gas through this channel. Despite its strategic importance to global trade, history shows this maritime route is a geopolitical flashpoint, from the Iran-Iraq tanker war in the 1980s to recent threats of blockades and vessel seizures.

Bob McNally, a former White House energy advisor and President of Rapidan Energy Group, noted that the oil market has long overlooked the risk of oil supply disruptions in the Middle East. Traders are underestimating the threat Iran's retaliation to the US attack poses to the market.

However, McNally believes Iran might pressure President Donald Trump by making the strait of Hormuz unsafe for commercial shipping, potentially driving oil prices above 100 US dollars per barrel. He argues the market "has not properly assessed" Tehran's significant arsenal of naval mines and short-range missiles, which could severely disrupt maritime traffic.

The expert predicts crude oil prices could rise by 5-7 US dollars per barrel when trading resumes next week. Over the weekend, Brent crude closed at 72,48 US dollars per barrel, up 1,73 US dollars, while US WTI crude added 1,81 US dollars to reach 67,02 US dollars.

"A prolonged closure of the strait of Hormuz would certainly cause a global recession", McNally stated.

He warned that the world's spare oil capacity primarily lies in Gulf countries and would be inaccessible to the market if the strait were closed. McNally also anticipates Asian countries will stockpile oil and gas, leading to "an unprecedented price war".

Fujairah Port, UAE in the strait of Hormuz, 12/2023. Photo: Reuters

Currently, Iran is retaliating with missile attacks on US bases in Qatar, Kuwait, UAE, and Bahrain, which could impact Hormuz traffic. According to Tom Kloza, director of oil and gas consulting firm Kloza Advisors, these attacks could sharply increase tanker insurance premiums or lead insurers to refuse coverage entirely.

Kevin Book, research director at ClearView Energy Partners, said the US could use its strategic petroleum reserve if prices surge. This reserve currently holds about 415 million barrels. However, he warned that a full-blown crisis in Hormuz might exceed the compensatory capacity of the US and International Energy Agency (IEA) member countries.

Tensions in the strait of Hormuz have simmered since earlier this year when President Trump imposed import tariffs on Iran's partners. According to Muyu Xu, a crude oil analyst at Kpler, Iran's output and exports are significantly larger than Venezuela's. Therefore, the global market would experience a stronger ripple effect.

Iran possesses the world's third-largest oil reserves, with 209 billion barrels, according to the Organization of the Petroleum Exporting Countries (OPEC). It is also the third-largest oil producer within the organization, pumping 3,3 million barrels of oil daily, equivalent to 3% of global demand.

In the most pessimistic scenario, analysts forecast that if oil tankers cannot transit the strait of Hormuz or if energy infrastructure is destroyed, oil prices could jump to about 100 US dollars, potentially even 140 US dollars per barrel if the shipping lane is completely blockaded. Saul Kavonic, Head of Energy Research at MST Marquee, noted that prices would "immediately spike" after any US attack on Iran, then quickly cool if the disruption is temporary. Experts also emphasize that such a catastrophic scenario has a very low probability of occurring.

Tieu Gu (according to Reuters, CNBC)