The Strait of Hormuz is a key waterway that lies between Oman and Iran, and connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.
The US Energy Information Administration (EIA) describes it as the “world’s most important oil transit chokepoint.”
At its narrowest point, the waterway is just 33 kilometers (21 miles) wide, with the shipping lane just two miles wide in either direction, making it crowded and perilous.
Large volumes of crude extracted by OPEC countries like Saudi Arabia, the United Arab Emirates, Kuwait and Iraq from oil fields across the Persian Gulf region and consumed globally flow through the strait.
Around 20 million barrels of crude, condensate and fuels are estimated to flow via the waterway daily, according to data from Vortexa, an energy and freight market consultant.
Qatar, one of the world’s largest producers of liquefied natural gas (LNG), relies heavily on the strait to ship its LNG exports.
What’s the current situation in the strait?
The conflict between Israel and Iran has put renewed focus on security in the waterway.
Iran has in the past threatened to close the Strait of Hormuz for traffic in retaliation to Western pressure.
Since the fighting between Israel and Iran broke out, however, there haven’t been any major attacks on commercial shipping in the region.
But shipowners are increasingly wary of using the waterway, with some ships having tightened security and others canceling routes there, the AP news agency reported.
Electronic interference with commercial ship navigation systems has surged in recent days around the waterway and the wider Gulf, naval sources told the Reuters news agency. This interference is having an impact on vessels sailing through the region, they said.
As there appears to be no immediate end to the conflict, markets remain on edge. Any blockade of the waterway or disruptions to oil flows could trigger a sharp spike in crude prices and hit energy importers hard, particularly in Asia.
Meanwhile, tanker rates for vessels carrying crude and refined oil products from the region have jumped in recent days.
The cost to ship fuels from the Middle East to East Asia climbed almost 20% in three sessions to Monday, Bloomberg reported, citing data from the Baltic Exchange. Rates to East Africa, meanwhile, jumped more than 40%.
Who will be most affected in case of supply disruption?
The EIA estimates that 82% of crude and other fuel shipments that traversed the strait went to Asian consumers.
China, India, Japan and South Korea were the top destinations with these four countries together accounting for nearly 70% of all crude oil and condensate flows that traversed the strait.
These markets would likely be most affected by supply disruptions in the strait.
How will a closure affect Iran and Gulf states?
If Iran takes action to close the strait, it could potentially draw military intervention from the United States.
The US Fifth Fleet, based in nearby Bahrain, is tasked with protecting commercial shipping in the area.
Any move by Iran to disrupt oil flows through the waterway could also jeopardize Tehran’s ties with Gulf Arab states like Saudi Arabia and the United Arab Emirates — countries Iran has painstakingly improved relations with in recent years.
Gulf Arab countries have so far criticized Israel for launching the strikes against Iran, but if Tehran’s actions obstruct their oil exports, they might be pressured to side against Iran.
Moreover, Tehran itself relies on the Strait of Hormuz to ship its oil to its customers, making it counterproductive to close the strait, say experts.
“Iran’s economy heavily relies on the free passage of goods and vessels through the seaway, as its oil exports are entirely sea-based,” Reuters quoted JP Morgan analysts Natasha Kaneva, Prateek Kedia and Lyuba Savinova as saying. “Cutting off the Strait of Hormuz would be counterproductive to Iran’s relationship with its sole oil customer, China.”
Are there alternatives to the strait?
Gulf Arab nations like Saudi Arabia and the UAE have sought alternative routes to bypass the strait in recent years.
Both countries have set up infrastructure that allows them to transport some of their crude via other routes.
Saudi Arabia, for instance, operates the East-West Crude Oil Pipeline with a capacity of five million barrels per day, while the UAE has a pipeline linking its onshore oil fields to the Fujairah export terminal on the Gulf of Oman.
The EIA estimates that around 2.6 million barrels of crude per day could be available to bypass the Strait of Hormuz in the event of disruptions in the waterway.
Edited by: Tim Rooks
