The Strait of Hormuz – Incoming Global Energy Crisis?

By Martin Armstrong 

Supply chain constraints are inevitable during wartime. Shippers are actively avoiding the Strait of Hormuz that connects the Persian Gulf to the Arabian Sea amid the Iranian nuclear tensions. This is a significant disruption as around 20% of global oil is funneled through this passageway.

Oman’s Musandam Peninsula hosts a narrow passageway with Iran that is only 30 miles wide but large enough for mass oil tankers to navigate. These strategic route allows for the shipment of around 21 million barrels per day. One-third of global liquefied natural gas (LNG) primarily from Qatar, rely on this crucial route. An estimated $1.7 billion of oil can pass through this channel on an average day, and any disruption has the ability to cause ripples throughout the global economy.

The United States, India, China, Japan, and South Korea are among the many developed economies that rely on this strait for its energy needs. Even a temporary pause in shipments would cause oil prices to skyrocket and disturb international trade. Iran has repeatedly used this passageway as leverage in negotiations. The Iranian government is well aware of the power it wields and have threatened to prevent passage during times of unrest and sanctions.