Iran's Control of Strait of Hormuz Shifts Global Oil Market Dynamics

The ongoing Iran war has had a lasting impact on the global economy, reshaping the way the world does business. One of the most significant changes is the control of the Strait of Hormuz, which is responsible for carrying one-fifth of the world's oil.

Before the war, ships could freely transit the strait, but after the US and Israel attacked Iran in late February, Iran declared the strait its own to control. This gave Iran economic leverage over the US and its Gulf state allies, closing off 13 million barrels of oil supply to the global economy.

In May, Iran changed its tactic from trying to close the strait to regulating its use. It formed the Persian Gulf Strait Authority and began requiring transiting ships to register with the group, follow an authorized navigation path, and pay a toll to cross. The US military has since been coordinating and escorting 'dark,' nighttime transits across the strait to increase oil exports and avoid Iranian drone attacks.

This shift in control of the Strait of Hormuz has forced countries reliant on Middle Eastern crude to adapt. Ross Mayfield, an investment strategist at Baird, noted that Iran will likely emerge from the war with a stronger position over control of the strait, which could lead to some kind of agreement allowing Iran to charge tolls for safe passage.

This precedent has already been set in other international waterways. Natasha Kaneva, head of commodities analysis at JPMorgan, pointed out that Turkey, Denmark, Sweden, Russia, and Indonesia all charge service fees for transiting various straits under the United Nations' guidelines.