The Strait of Hormuz holds global energy hostage

At the heart of global anxiety over the Iran-Israel military escalation is the Strait of Hormuz, a narrow yet critical shipping lane linking the Persian Gulf with the Gulf of Oman. In fact, this chokepoint, through which four out of every ten globally traded oil barrels pass, remains the most vulnerable artery of the international energy system.

According to the International Energy Agency (IEA), nearly 20 million barrels of oil transited the Strait daily in 2023, almost 30% of global seaborne oil trade. This lifeline connects oil-producing giants like Saudi Arabia, the UAE, Kuwait, Qatar, Iraq and Iran to energy-hungry nations including China, India, Japan and South Korea. With few viable alternatives, any disruption would trigger immediate and far-reaching consequences.

Now, with Tehran signalling that a closure of the Strait is “under consideration” at the highest levels, even if more rhetorical than imminent, it revives fears of asymmetric escalation following Israel’s June 13 strike that killed top Iranian military officials, nuclear scientists and civilians.

In a recent televised interview, Sardar Esmail Kowsari, senior Iranian MP and IRGC commander, stated, “If our national security is under threat, Iran reserves the right to respond decisively, including by controlling the Strait of Hormuz.”

For its part, the US Energy Information Administration estimates that roughly one-fifth of global petroleum liquids consumption passes through Hormuz annually. The threat of disruption, real or perceived, is enough to rattle energy markets worldwide. Israel has launched attacks on the South Pars gas field, located offshore in Iran’s Bushehr Province and shared with Qatar, the world’s largest natural gas reserve, forcing analysts to say that such strikes only make Russian energy supplies more valuable.

However, this isn’t the first time Iran has wielded the Strait as leverage. In 2012, facing crippling Western sanctions over its nuclear programme, Iran made similar threats, prompting a spike in oil prices and a swift military response from the US Navy’s Fifth Fleet, headquartered in Bahrain.

In response to such risks, Saudi Arabia and the UAE have over the years invested billions in alternative export routes, including pipelines to the Red Sea and the Emirati port of Fujairah. Yet, these channels handle only about 6.5 million barrels per day, a fraction of the volumes that transit Hormuz. Iran, lacking alternative outlets, would be effectively cut off. Worse, most of the world’s spare oil production capacity, largely held by Saudi Arabia, would also be rendered inaccessible during a closure.

In fact, Hormuz isn’t merely about oil. On the other hand, it is also a critical conduit for liquefied natural gas (LNG). In the first ten months of 2023, according to IEA, nearly 90 billion cubic metres of Qatari LNG and 5.5 bcm from the UAE flowed through the Strait, roughly 20% of global LNG trade, fuelling Asian nations dependent on gas imports.

Qatar, the world’s second-largest LNG exporter after the US, cannot reroute its cargo through any pipeline. According to the IEA, countries like Bangladesh, India and Pakistan import over 70% of their LNG via Hormuz. In the event of a closure, their gas-fired power plants would be the first to go dark, resulting in blackouts, factory shutdowns and fertiliser shortages.

The IEA estimates that a full closure would choke off 295 million cubic metres of gas per day, nearly double the daily flow of Russia’s Nord Stream pipeline before it was sabotaged. No other LNG producer has the spare capacity to fill that void, it adds.

While Western navies maintain a presence in the Gulf, tensions remain high. According to reports, the US Navy recently issued a guarded statement reaffirming its commitment to “ensuring the free flow of commerce through all international waters,” without directly naming Iran.

European nations, already reeling from the energy crisis sparked by Russia’s invasion of Ukraine, are increasingly reliant on energy supplies from the Gulf. In 2023, European imports from the region surged to over 900,000 barrels per day, up from 700,000 before the war, according to analysts. A disruption in Hormuz would ripple far beyond Asia, shaking markets across continents, they warn.

Again, this would also pit Asian and European buyers against one another, driving up prices and forcing governments to choose between cutting power, closing industries or subsidising energy at enormous fiscal cost. In countries like Bangladesh and Pakistan, where gas powers 60% and 35% of electricity generation respectively, the fallout would be catastrophic, deepening inflation and risking food insecurity.

Therefore, the Strait of Hormuz, barely visible on a world map, remains the most perilous energy chokepoint on the planet. And once again, it stands at the centre of a global crisis.

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