Bakhtiar Ahmad Salih / Researcher

The Strait of Hormuz is considered one of the most important maritime energy chokepoints in the world. It connects the Persian (Arabian) Gulf to the Gulf of Oman and the Arabian Sea, and is a critical passage for the flow of crude oil and liquefied natural gas (LNG) from Gulf countries to global markets, particularly Asia. Data from the U.S. Energy Information Administration (EIA) indicates that the average oil flow through the strait in 2024 reached approximately 20 million barrels per day, which represents about 20% of global oil consumption. Additionally, approximately one-fifth of global liquefied natural gas (LNG) trade passes through this location, with the majority supplied by Qatar and the UAE. Even a temporary closure of the strait would cause an immediate shock to energy prices and severe disruption to supply chains, with the potential for rapid impacts on inflation and global economic growth. Asian economies (China, India, Japan, and South Korea) are likely to suffer the most losses, as approximately 80-84% of oil flow through the Strait of Hormuz is destined for Asian continent countries.

Historical Background

The Strait of Hormuz has long been an important narrow maritime passage for trade, connecting the Mesopotamian civilization to the Indus Valley civilization more than four thousand years ago. In 3000 BCE, Sumerian merchants established direct maritime connections across the Persian Gulf, spanning approximately 1850 kilometers. Archaeological discoveries confirm robust maritime trade between Sumer and the ports of the Harappan civilization in the late third and early second millennium BCE. During the Achaemenid Empire (550-330 BCE) and the Sasanian Empire (224-651 CE), Persian rulers controlled the Strait of Hormuz and surrounding ports in the Persian Gulf, making them part of their empire’s commercial and maritime strategy. The Sasanians ruled territories that included Oman (then known as Mazun), which enhanced maritime security and facilitated trade with India, East Africa, and the Arabian Peninsula. This control ensured the continuation of the strait’s strategic role in supporting Persia’s (Iran’s) economic and military power throughout the Indian Ocean region.

Following the Islamic conquests in 650-651 CE, the strait became a cornerstone in expanding the caliphate’s trade networks, first during the Umayyad period and then the Abbasids. In the tenth century, Hormuz became the main port for the Kerman and Sistan regions, where goods from the Indian Ocean were transported to domestic markets. With the decline of the Abbasid Caliphate in the same century, the independent Kingdom of Hormuz emerged and reached its zenith as a Gulf power in the fifteenth century. By controlling routes, fortifying ports, and collecting taxes on goods such as spices and silk from India and Southeast Asia, and Arabian horses, dates, and pearls going to Iran, Iraq, and elsewhere, it dominated maritime trade, thereby establishing its position as a global commercial center and attracting Arab, Persian, Indian, and African merchants.

The strategic importance of the Strait of Hormuz became evident with the discovery of oil in Persia in 1908 at the Masjed Soleiman field by William Knox D’Arcy. This discovery led to oil exports through the newly established Abadan refinery on the Shatt al-Arab waterway, from where oil tankers transported crude oil to global markets. The Anglo-Persian Oil Company obtained special concessions for oil production and rapidly increased production to fuel the British Royal Navy during World War I, thus cementing the strait’s role in the British Empire’s energy system. During the interwar period, Britain consolidated its hegemony in the Persian Gulf through naval patrols and agreements with local sheikdoms, making the protection of oil tanker routes through the strait its top priority and transforming the strait from a mere maritime passage into a strategic energy artery for the British economy.

During World War II, the importance of the strait increased significantly, as Allied forces relied on Iranian oil, which by 1944 had reached over ten million tons annually and was transported only via oil tankers passing through the Strait of Hormuz. Axis powers attempted to disrupt this shipping line through submarines and air strikes, but efforts were limited.

After the war, reconstruction efforts and the outbreak of the Korean War (1950-1953) led to increased demand for oil. Production in the Gulf region rose from half a million barrels per day in 1945 to over two million barrels per day in 1955, with the majority of oil exports passing through the strait, thereby deepening Western dependence on continuous and uninterrupted oil flow.

Britain withdrew from the protected territories in the Gulf in 1971, terminating its agreements with Bahrain, Qatar, and the UAE. This strategic vacuum led the United States to make securing the Strait of Hormuz a priority in its operations to prevent regional instability and the expansion of Soviet influence.

In 1973, OPEC countries, including Saudi Arabia, halted oil exports to the West due to its support for Israel in the October 1973 war, making the strait the center of a global energy crisis. The export halt quadrupled oil prices (from $3 to $12 per barrel) and exposed supply vulnerabilities, as 15 to 20 percent of global oil trade passed through the Strait of Hormuz. The crisis, which halted exports of approximately seven million barrels per day, triggered a comprehensive Western strategic review, including U.S. plans for strait defense and supply source diversification projects, such as the Alaska pipeline. Following the Iranian Islamic Revolution in 1979, the Strait of Hormuz became a pressure card in regional conflicts.

By the late 1970s, Gulf exports constituted more than 30% of global maritime oil trade, making the Strait of Hormuz a crucial center in global energy security and a key determinant of geopolitical policies and military positions in the region.

Geopolitical and Economic Significance of the Strait of Hormuz

Geographic Location and Navigational Characteristics

The strait lies between Iran’s coasts to the north and the Arabian Peninsula to the south (Oman and UAE). At its narrowest point, it is approximately 33 km wide, while the actual navigational channel (inbound/outbound) extends to approximately two nautical miles in each direction, with a separation zone, making it highly sensitive to any military or security threat. This geographic narrowness, combined with the enormous volume of traffic (Very Large Crude Carriers (VLCC), LNG tankers, cargo ships), has transformed the strait into a geopolitical lever at the heart of global energy trade, while simultaneously making it a primary pressure card in Iran’s strategy and in the calculations of both the United States and Gulf countries.

Volume of Oil and Gas Flow Through the Strait

According to International Energy Agency estimates, the average crude oil export through the strait in just the first ten months of 2023 reached approximately 16 million barrels per day, which constitutes about 40% of global seaborne crude oil trade. Adding other petroleum products, the total reached approximately 20-20.3 million barrels per day between 2024-2025.

Additionally, a significant amount of liquefied natural gas (LNG) passes through the strait, such that Qatar in 2024 exported approximately 9.3 billion cubic feet of LNG per day, while the UAE exported approximately 0.7 billion cubic feet per day, which together equals the total LNG exports from the Gulf through the strait. This means that any prolonged closure of the strait would result in:

First. Oil markets experiencing an energy supply shortage shock reaching 20% of consumption in the event of complete oil flow stoppage.

Second. LNG markets experiencing significant tightness, particularly in Europe where approximately 10% of LNG imports depend on Hormuz, and a large portion of Asian gas is supplied through Qatar.

Geopolitical Threats and Scenarios for Strait of Hormuz Closure

Geopolitical Threats

Iranian Threats

Iran is a major player in the strait’s security, possessing significant access to it and sharing navigational sovereignty with Oman. Iran attempts to use the strait as a tool against major powers, particularly in the event of economic sanctions or war. Iran has previously threatened to close the Strait of Hormuz several times as a deterrent against U.S. sanctions or Israeli threats. These threats are part of Iran’s geopolitical strategy, as it attempts to impose its hegemony over the region and control affairs according to its interests.

Economic Consequences of Strait Closure

First. Complete closure of the Strait of Hormuz would cause an immediate spike in global oil prices. Analysts have predicted price increases in several scenarios: Brent crude oil prices might rise between $85 to $120 per barrel, or potentially exceed $100 and reach $150 per barrel. Some Iranian state media have warned that prices could reach $400 per barrel. The International Energy Agency (IEA) has consistently stated that any disruption to shipping flows through the strait would have severe impacts on global oil markets. Even the mere threat of closure, such as that which occurred recently during the 12-day war between Israel and Iran, causes significant price instability.

Second. Price increases in liquefied natural gas (LNG) markets: Strait closure would also significantly impact LNG supply. Qatar, one of the world’s largest LNG exporters, conducts nearly all its exports through the Strait of Hormuz. This closure would cause a sharp increase in LNG prices, particularly in Asian and European markets which are energy-starved, potentially raising prices to levels not seen since 2022 for liquefied natural gas.

The major economic impacts of sharp increases in global oil and gas prices directly translate into higher costs for goods across many economic sectors, most notably transportation, chemicals, and heavy industry, which necessarily accelerates global inflation and puts new pressure on global central banks, disrupting recent progress in price stabilization. World Bank analyses indicate that oil price shocks have been the primary driver of changes in global inflation over the past five decades, accounting for more than 38%. The impact of rising energy costs and widespread inflation could cause significant slowdowns in global economic activity. Analysts predict a decline in global domestic product by 1% to 2% if the Strait of Hormuz is closed for an extended period.

Central banks must choose between two options: either combat inflation by raising interest rates, which could endanger economic growth, or encourage growth, which could exacerbate inflationary pressures. Additionally, increased transportation costs and higher insurance premiums would disrupt global transportation and insurance markets.

Strait closure would require massive rerouting: Closing the strait would cause significant cost increases and delivery delays for maritime transportation worldwide. Increased transportation costs and delays are transferred globally to consumers, further destabilizing supply chains already unstable after the COVID pandemic. Industries that rely on Just-In-Time (JIT) production models, such as electronics and automobiles, particularly experience inventory shortages and production shutdowns. The Arabian Gulf is a major source of natural gas liquids (NGLs), refined petroleum products (such as CPP and DPP), and methanol—a key source for the global petrochemical industry and necessary for diesel flow to Asia and Europe. Any disruption to these supplies would have significant impacts on industrial production globally. The region’s heavy dependence on importing agricultural products through the Strait of Hormuz also puts regional food security at risk.

Iran and the Use of the Strait of Hormuz as a Pressure Card

Iran is the most influential actor in strait security, given its control of the northern coast and ownership of military capabilities (coastal missiles, fast attack craft, naval mines) that grant it the ability to threaten navigation. Tehran has previously used the threat of closing the Strait of Hormuz several times as an obstacle against U.S. sanctions or Israeli threats. However, the possibility of complete and prolonged strait closure is considered remote due to the following factors:

Iran itself depends on the Strait of Hormuz for exporting the majority of its oil. Exports between 2023-2024 reached approximately 1.4-1.5 million barrels per day, generating annual revenue of approximately $53-67 billion despite existing sanctions.

Any complete closure of the strait would not only conflict with the West but would directly confront Tehran with China and India, two of its largest oil buyers.

In the 1980s, when the Tanker War erupted, it became clear that international naval forces were able—albeit at great cost—to maintain minimum levels of navigational security and prevent complete strait closure. Therefore, most estimates discuss scenarios of partial or temporary closure (targeted attacks, mines, oil tanker seizures, electronic warfare against navigation systems) rather than sudden and prolonged closure.

Impact on Prices and Global Markets

Several studies indicate that the mere threat of strait closure raises Brent crude oil prices, even if oil exports are not reduced.

Recent journalistic estimates and economic analyses suggest that partial strait closure could raise Brent oil prices to $110-130 per barrel, while complete strait closure could raise prices to much higher levels. Some estimates predict that prices could exceed $150 per barrel.

Price increases are not only related to oil scarcity but sometimes stem from certain oil market behaviors (hoarding from fear of shortages, increased insurance and transportation costs).

From an economic perspective, sharp increases in oil and gas prices would be reflected in:

First. Global inflation (particularly in food, transportation, and energy industries).

Second. Debt service costs in economies of importing countries, resulting in the risk of recession, stagnation, or slowed economic growth.

Alternatives to the Strait of Hormuz

Saudi Arabia: East-West Pipeline (Petroline)

Aramco operates the East-West pipeline, which transports oil from the Abqaiq facility in the eastern region to the port of Yanbu on the Red Sea. It has an export capacity of approximately 5 million barrels per day and has been temporarily increased to approximately 7 million barrels per day by using some natural gas liquids (NGL) transport pipelines for crude oil transport. This pipeline allows Saudi Arabia to transport a significant portion of its oil exports away from Hormuz’s influence, but:

First. Not all Saudi oil production is connected to this pipeline.

Second. Using maximum pipeline capacity to operate at full capacity requires additional investment, particularly in western Saudi Arabia.

UAE: Habshan-Fujairah Pipeline

The UAE owns the Habshan-Fujairah pipeline (ADCOP), approximately 360-380 km long, which connects Abu Dhabi’s inland fields to the port of Fujairah on the Gulf of Oman. The pipeline has a transport capacity of approximately one and a half million barrels per day and handles more than half of the UAE’s crude oil exports. Through expansions and upgrades, its actual capacity has increased to approximately 1.5-1.8 million barrels per day. This pipeline grants the UAE significant ability to bypass the Strait of Hormuz, making the port of Fujairah one of the world’s largest oil storage and export centers outside the Gulf.

Iran: Goreh-Jask Pipeline

Iran has attempted to reduce its dependence on the Strait of Hormuz by constructing the Goreh-Jask pipeline, which extends from the Gulf coast to the Sea of Oman. These pipelines have a transport capacity of approximately 1 million barrels per day. However, recent assessments by the U.S. Energy Information Administration (EIA) have indicated that the actual pipeline capacity is 300,000 barrels per day, and oil exports through the Jask and Kuh Mobarak ports in summer 2024 fell to less than 70,000 barrels per day and later halted after September 2024 due to operational issues. Therefore, this pipeline theoretically serves as a partial alternative, but has not yet become a primary route for Iranian oil exports due to sanctions, lack of financial support, and market limitations.

According to international agency estimates and specialized sources in the energy sector (EIA), oil transport pipelines outside the Strait of Hormuz (Saudi Arabia, UAE, part of Iran’s capacity) can provide approximately 3.5 million barrels per day, compared to approximately 20 million barrels per day through Hormuz. This means that alternatives can only provide 15-20% of the oil in the best case, which in practice means that:

Complete strait closure at current capacity is nearly impossible to compensate for.

The most that can be done is to reduce the losses of Hormuz closure rather than become a primary alternative.

Strategic Reserves and Supply Source Diversification

Strategic Oil Reserves in Major Countries

United States: The U.S. owns the world’s largest reported strategic oil reserve at approximately 714 million barrels, while inventory volumes reached approximately 393-402 million barrels at the end of 2024 and mid-2025. Maximum withdrawal capacity is approximately 4.4 million barrels per day, meaning the reserve theoretically covers only a four-month supply.

China: Energy research centers estimate that China’s total oil reserves (governmental and commercial) can provide 96 to 120 days of oil supply according to storage levels in 2024, meaning provision of 11.1 million barrels per day. This grants Beijing significant capability to withstand temporary oil supply shocks from the Middle East, but does not help in the event of prolonged disruption and rising prices.

Japan and South Korea: Japan follows a dual system of government and industrial reserves. Government reserves can provide approximately 90 days of oil, while the private sector is obligated to provide approximately 70 additional days, meaning approximately 160 days of consumption. South Korea also has government and industrial reserves and can withstand 90 days without oil imports.

India: India’s strategic oil reserve can only withstand 9.5 days without oil imports, but with commercial reserves, total storage capacity covers approximately 74-75 days. Thus, India has less self-sufficiency capability compared to China or Japan, but compensates for this through supply source diversification (Russia, United States, West Africa, Brazil).

Supply Chain Diversification

Recent data indicates that India now imports a significant portion of its oil from Russia through routes outside the Strait of Hormuz (Suez Canal, Cape of Good Hope, or northern sea ports), while Qatar’s LNG imports arrive through routes that do not entirely depend on the strait. This diversification, along with long-term LNG agreements with Qatar, Australia, and the United States, enhances India’s resilience capacity in the event of Hormuz closure.

Gulf States’ Reserves: Gulf countries possess significant storage reserves, but these countries are largely oriented toward supporting export flows rather than compensating for their losses. In the event of Strait of Hormuz closure:

Exporting countries (particularly Iraq, Kuwait, Qatar, and Bahrain) face the cessation of nearly all their exports, as they have no alternative routes.

Only Saudi Arabia and the UAE have significant capability to continue exporting oil away from the strait, but only within the limits of their pipeline capacities.

Role of OPEC Plus and Spare Capacity in Mitigating the Shock

The International Energy Agency estimates that total spare production capacity among OPEC countries in 2025 will be approximately 5.0-5.8 million barrels per day (mb/d), primarily from Saudi Arabia approximately 3.0 mb/d, UAE approximately 1.0-1.2 mb/d, Iraq approximately 0.4-0.6 mb/d, and Kuwait approximately 0.3-0.4 mb/d. Theoretically, this capacity can be used to compensate for a small portion of any supply disruption through the Strait of Hormuz, but it only covers a small portion close to the 20 million barrels per day passing through it, in addition to time and logistical constraints that prevent effective response. But in practice:

Spare capacity does not solve the maritime route problem; even if production is increased, there is no necessary route for oil export if alternative pipelines are not available.

In 2024-2025, OPEC Plus operates within a framework of oil production cuts to protect market balance. Any decision to increase production becomes a complex political decision, considering member state interests and oil prices.

In the event of Hormuz closure, OPEC Plus finds itself facing a choice: reduced oil exports by some members (Gulf) versus the ability of other members to increase production through different routes (Russia, some African and Latin American producers).

Impact of Strait of Hormuz Closure on Iraq

Against Hormuz closure, Iraq suffers the most losses, not only due to complete dependence on oil exports, but also due to economic diversification weakness, absence of stable geographic alternatives, and the instability of this country’s financial and currency structure. Unlike Saudi Arabia or the UAE, Iraq has no suitable alternative for maneuvering if its only access route to global markets is closed.

Importance of Oil to Iraq’s Economy

According to official data, oil constitutes more than 93% of total budget revenue, approximately 85-90% of total exports, and directly or indirectly participates at 60% in domestic product. Currently, Iraq exports between 3.4 to 3.6 million barrels of oil per day only through Basra ports (Basra Oil Terminal, Khor al-Amaya), meaning the majority of oil exports are conducted through the Arabian Gulf and the Strait of Hormuz. This means that 100% of Iraq’s oil exports are tied to this strait’s security, which makes Iraq suffer the most losses in the event of strait closure, even more than Iran.

Direct Financial Losses in the Event of Strait Closure

Assuming Iraq exports 5 million barrels of oil per day and the price per barrel is $85, direct daily losses reach approximately $297 million, meaning more than $8.9 billion per month and annually reaching more than $107 billion. This approximately equals the entire Iraqi government expenditure, or more than 70% of the 2024 budget. It also impacts salaries and assistance, considering that more than 7 million citizens directly depend on government salaries and 40% of the population depends on government support networks. Oil export cessation would result in the government being unable to pay salaries within weeks, all investment projects stopping, food and service support systems being cut off, opening the door to unrest and social pressure.

Impact on Iraqi Dinar Value and Banking Sector

Hormuz closure means losing revenue from oil sales. This creates a shock to the Central Bank of Iraq’s foreign currency reserves, puts enormous pressure on the dinar exchange rate, activates the currency black market, and rapidly creates inflation, particularly in the sectors of food, fuel, construction materials, and pharmaceuticals. Iraq’s banking system, already unstable, is affected by strait closure such that citizens withdraw their deposited money from banks, confidence in banks disappears, and support provision for external trade is lost.

Impact of Strait Closure on Imports (Food, Medicine, Fuel)

Iraq imports more than 70% of food, more than 90% of medicine and medical supplies, more than 60% of fuel components (despite being an oil-producing country) from abroad. A large portion of these imports are supplied through Arabian Gulf ports. Therefore, strait closure means sharp increases in food prices within days, medicine shortages within weeks, severe fuel and electricity crises, and partial collapse of transportation lines.

Political and Security Impact Inside Iraq

Hormuz closure creates not only economic risks but threatens the very balance of Iraq’s political system from several angles:

The Iraqi state is based on: oil + salaries + partial political trust. When this cycle breaks, the system enters a state of social and economic legitimacy vacuum.

Expansion of protests and potential violence: In 2019 and 2022, it became clear that financial crises quickly transform into widespread protests that may escalate to violence. On the other hand, militias become stronger, parallel economy emerges, smuggling networks are created to fill the void, Baghdad’s ability to control provinces weakens, leading to increased lawlessness.

Does Iraq Have Geographic Alternatives?

Iraq-Turkey Pipeline (Ceyhan): Has an export capacity of 6 million barrels per day, but has been shut down since 2023 for political reasons, and even if operations resume, it only covers 45% of southern exports.

Jordan/Aqaba Pipeline Option: Still in the study and negotiation phase, will not be ready for several years, and has limited capacity.

Assessment of Alternative Capacities in Strait Closure Scenarios

Gulf Exporting Countries

Saudi Arabia: Theoretically can conduct most exports through the East-West pipeline, but this requires operating at full capacity, meaning 5-7 million barrels per day, along with Yanbu infrastructure adaptation for this task.

UAE: Can export most of its oil through the Habshan-Fujairah pipeline, but at a capacity of 1.5-1.8 million barrels per day.

Iraq, Kuwait, Qatar, Bahrain: Practically have no export capacity remaining in the event of complete Hormuz closure due to lack of alternative routes. Qatar can attempt to reroute some LNG through coordination with other ports, but this does not compensate for the volume passing through Hormuz.

Iran: Despite discussions about bypassing Hormuz, is completely dependent on Kharg Island and its ports in the Persian Gulf. The Goreh-Jask pipeline has not yet become a primary and effective alternative, and strait closure means losing a significant portion of its oil revenue, which explains why Iran is hesitant about actually implementing its threat to close the strait.

Major Importers (Asia, Europe, and America)

China: Owns large reserves and broad geographic diversification in imports (Russia, Africa, Latin America), but still faces significant obstacles, as a significant portion of its energy imports from Saudi Arabia, Iraq, and UAE pass through the Strait of Hormuz.

India: Approximately 40-50% of Middle Eastern oil imports are supplied through the Strait of Hormuz, with relatively limited strategic reserves, making it face increased inflation and financial pressure in the event of prolonged strait closure.

Japan and South Korea: Despite owning relatively large reserves, Japan’s dependence on Hormuz oil reaches approximately 70-80% and South Korea approximately 60%, making strait security a fundamental issue for these two countries’ economies.

Europe: Most impact is related to Qatari liquefied natural gas (LNG), as approximately 10% of European LNG imports pass through Hormuz, in addition to importing some Saudi and Iraqi oil through the Strait of Hormuz.

United States: Due to the shale oil revolution, depends less on Gulf oil, but is still affected by global price increases and maritime supply chain (shipping, insurance, transportation costs), in addition to having strategic interests in the security of Asian and European allies.

Conclusion

The Strait of Hormuz is a global economic artery through which a significant portion of the world’s oil and liquefied natural gas passes. Any closure, even temporary, causes an immediate and widespread global economic shock, resulting in sharp energy price increases, inflation, increased shipping and insurance costs, and supply chain collapse. These reactions can cause global economic slowdown or even recession in economic growth. Major Asian economies such as China, India, Japan, and South Korea suffer the most losses due to their heavy dependence on oil and liquefied natural gas imports through the Strait of Hormuz, but their vulnerability varies according to their diversification efforts and strategic reserves. Exporting countries in the Persian Gulf, including Iran itself, face severe economic collapse and enormous losses in the event of strait closure. Despite Iran’s repeated threats, prolonged Strait of Hormuz closure is considered highly unlikely due to, first, the devastating economic consequences for Iran and, second, the presence of U.S. naval forces that attempt by any means to prevent this action. Alternative pipelines and strategic oil reserves can withstand strait closure for a period, but in the long term cannot completely compensate for energy supply shortages. Iraq has no rapid alternative in the event of Hormuz closure and becomes the victim of a war in which it has no role, while bearing the harshest economic and social burdens and becoming the first country whose economy collapses. The threat of closure or short-term disruption of energy transit can cause significant price instability and negative economic reactions. To protect global economic stability, efforts must focus on strengthening diplomatic dialogue, avoiding military escalation in the region, continuing energy source diversification strategies, and strengthening strategic reserves to reduce dependence on the Strait of Hormuz.