Strait of Hormuz vital for global energy trade and vulnerable to disruption

The Strait of Hormuz is a critical sea passage between Iran and Oman that links the Persian Gulf to the Gulf of Oman and the Arabian Sea. It serves as a vital artery for global energy trade, facilitating the transport of approximately 20% of the world’s oil consumption and a significant portion of liquefied natural gas (LNG) supplies. Any disruption in this narrow corridor, just 34 km at its widest and with navigation lanes of about 3.2 km each, can have immediate and far-reaching effects on global energy prices.

In the first half of 2025, the Strait of Hormuz saw an average daily passage of 20.9 million barrels of crude oil and petroleum products, accounting for over a quarter of all oil transported by sea. This makes it a major choke point in global trade, particularly for Asia, which received 89% of the oil passing through the strait. The region’s dependency on Hormuz underscores the potential economic impact of any disruptions, as seen in the reactions of oil traders and global markets to geopolitical tensions in the area.

The strait is also crucial for LNG trade, with around 20% of global LNG passing through it in 2024, primarily bound for Asia. A major disruption could simultaneously drive up both oil and gas prices, given the interconnected nature of these energy markets. While alternative pipelines exist in Saudi Arabia and the UAE, their capacity is significantly lower, making a complete, prolonged closure of the strait a potential global crisis.

Oil prices react to even the threat of disruption, as futures markets factor in geopolitical risks before any physical changes occur. Iran, which controls the northern shore, has used the threat of restricting shipping as a lever in political and military negotiations. However, a total and sustained closure is challenging due to the country’s own reliance on the strait for its exports and the broader economic implications for its trading partners.