Iran claims to have ‘complete control’ of one of the world’s major shipping routes, causing chaos for the global supply of oil and gas as the growing conflict in the Middle East continues.
The Strait of Hormuz is a waterway in the Persian Gulf through which around a fifth of the world’s oil passes.
Iran effectively closed the route this week after US missiles sank several Iranian ships. By Sunday maritime traffic had dropped 80 per cent according to Lloyd’s List Intelligence.
“Currently, the Strait of Hormuz is under the complete control of the Islamic Republic’s Navy,” IRGC Navy official Mohammad Akbarzadeh said on Wednesday in a statement.
The IRGC has threatened to set fire to any ships attempting to pass through. President Donald Trump said that US navy forces would be deployed to escort oil tankers “if necessary”.
Experts have warned that global supply chains will face major disruption and restriction to shipping could send prices of oil well into triple digits.
Below we look at the Strait and why it is so strategically important.
Where is the Strait of Hormuz?
The Strait of Hormuz lies between the Persian Gulf to the north and the Gulf of Oman to the south, opening up to the Arabian Sea and beyond to the rest of the world.
It is roughly 100 miles long but only 21 miles across at it’s narrowest point.
The land-flanked passage lies in Iran’s territorial waters but is viewed as an international waterway open to all ships. The opening consists of two shipping lanes, just 2 miles wide in either direction.
International law permits countries to exercise control of up to 13.8 miles (12 nautical miles) from their coastline. At its narrowest point, the passage comes under both Iranian and Omani control.
Iran lies on one side of the Strait, and some of the world’s biggest oil suppliers including Kuwait, Bahrain Qatar, UAE, Saudi Arabia and Oman lie across the waters.
What passes through the Strait?
It is one of the world’s most important maritime chokepoints, with 20 million barrels of oil passing through it each day – one fifth of global oil consumption – and up to one third of the the world’s supply of liquefied natural gas.
This amounts to over 500 million barrels of oil and six million tonnes of gas every month, according to Lloyd’s List. Much of this is exported to Asian markets including China (Iran’s only remaining oil customer), India and Japan.
It is the route for supertankers carrying oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the UAE and Iran.
Around 3,000 shipping vessels pass through the passage every month including oil tankers, liquefied natural gas containers and cargo vessels, according to Lloyd’s List. This amounts to over 30,000 ships every year.
While there are pipelines in Saudi Arabia and the UAE that can avoid the passage, the US Energy Information Administration says “most volumes that transit the strait have no alternative means of exiting the region.”
Last month, Iran closed the Middle Eastern waterway for the first time since the 1980s as Iranian troops took part in live-fire military exercises.
Iran had not threatened to close the passage even during its 12-day war with Israel last June, when US-Israeli strikes took out some of the country’s key nuclear and military sites.
A global trade bottleneck as missiles rain down
Passage through the waterway has almost ground to a halt creating a trade bottleneck since war broke out.
Seaborne traffic is reported to have dropped by 80 per cent on Sunday, according to Lloyd’s List Intelligence, while Argus Media cited Bahrain-based Joint Maritime Information Centre to say movement had dropped by 94 per cent since Saturday. Only three ships passed through, according to JMIC, far below the 138 average.
Around 150 vessels have dropped anchor near the Strait, according to Reuters. Hundreds of others have dropped anchor near Gulf countries as shipping movements are halted.
At least four tankers are reported to have been hit in the mayhem as maritime insurers have pulled insurance cover. At least one Indian crew member was killed, according to Euro News. Several reports from trade publications suggest others have been injured.
President Trump said in a post on Truth Social on Tuesday that the US Navy will begin escorting tankers through the Strait of Hormuz “as soon as possible”.
“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” he added. “The United States’ ECONOMIC and MILITARY MIGHT is the GREATEST ON EARTH — More actions to come,” he said.
In his message, the president added that he was ordering the U.S. International Development Finance Corporation, a government agency focused on foreign infrastructure investment, to offer “political risk insurance and guarantees for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf.”
Effects on oil prices and the global economy
Any disruption to traffic through the Strait of Hormuz is highly disruptive to the oil trade.
“The scale of what is at stake cannot be overstated,” said Hakan Kaya, senior portfolio manager at investment management firm Neuberger Berman.
A partial slowdown lasting a week or two could be absorbed by oil companies, he said.
But a full or near full closure lasting a month or more would push crude oil prices, trading around $80 on Tuesday, “well into triple digits” and European natural gas prices “toward or above the crisis levels seen in 2022.”
Threats to the route have spiked global energy prices in the past, including during the Israel-Iran war in June.
China and Japan, who will be severely impacted, have called for an immediate de-escalation to the conflict.
China would take necessary measures to safeguard its energy security, a spokesperson for the foreign ministry said on Tuesday when asked about the potential impact on China’s oil supply.
Source: independent.co.uk