The Strait of Hormuz is the most important waterway you’ve never heard of—until today.
After the US bombed three key nuclear sites in Iran on Saturday night, the world has been holding its breath for the geopolitical and economic fallout. But at least so far, oil has had a relatively muted response to the military escalation.
Crude rose to its highest price since January last night, before retreating this morning after President Trump posted on Truth Social this morning that “everyone” should keep oil prices down.
Oil fell even further in the afternoon after Iran launched a missile attack against a US airbase in Qatar—which may seem odd considering that an escalation in hostilities should push crude prices higher, but traders were relieved to see that Iran didn’t target any energy facilities in the region. Crude oil ended the day down 7.12%.
But a high-stakes game of chicken over the 90-mile waterway that connects the Persian Gulf and Arabian sea could completely change the dynamic for energy prices in the coming weeks.
How the Strait of Hormuz could impact oil prices
Analysts agree that among the most catastrophic risks of the growing conflict is that Iran closes the Strait of Hormuz, the waterway through which about 20 million barrels of crude oil are shipped every single day. Roughly 20% of all the world’s energy consumption flowed through the strait last year, according to the Energy Information Administration.
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Yesterday, Iran’s parliament voted in support of closing the waterway in retaliation to US attacks, but final approval is still needed from the top of Iran’s government. If the strait is blockaded or Iran plants mines in the waterway—even temporarily—oil prices could skyrocket to over $100 per barrel, according to analysts.
Even if the strait isn’t officially shuttered, shipping companies are already rerouting vessels because of security risks, which could spike the price of containers shipped overseas.
Cooler heads: However, closing the strait would be destructive for Iran’s economy, too, and many analysts believe it would be a last-ditch decision rather than an immediate retaliation to this weekend’s strikes. Today’s limited response from Iran, which warned Qatar of its missile attack ahead of time and caused no American casualties, also suggests de-escalation ahead.
“While the events in the Middle East remain fluid, we think that the economic incentives, including for the US and China, to try to prevent a sustained and very large disruption of the Strait of Hormuz would be strong,” concluded Goldman Sachs co-head of global commodities research Daan Struyven.—LB