Why the Strait of Hormuz is such a big deal
Let’s break this down. The Strait of Hormuz is a narrow but vital seaway between Iran and Oman. It’s the route by which nearly 20 million barrels of oil—roughly a fifth of the world’s daily oil use—travel daily. That’s why this strait has also been called the most vital oil chokepoint globally.
So when Iran’s parliament recently approved a bill to shut it down, warning flags started flying in oil markets globally. But here’s the catch—Iran’s parliament cannot do it after all. That power is vested with the country’s most senior security officials.
You should read this much later: This is what the Robin radar system looks like, the method used in the Ukraine-Russia war that will be used to solve the mystery…
Would Iran actually block the Strait?
Experts are skeptical. Iran has threatened before to close off the strait, but never has—as doing so would be suicidally reckless, even for Iran itself.
Why? Iran uses the same strait to ship its own oil, largely to China. To cut it off would be cutting off its own air. As U.S. Senator JD Vance put it, “It would be economic suicide.”
Also, the United States Navy maintains a strong presence in the region, specifically the Fifth Fleet from Bahrain. Any effort to narrow the waterway would most likely be met with immediate and harsh military action.
However, just the threat could shake oil prices
Even if Iran does not in fact shut the strait, the threat of doing so can send oil prices soaring. After recent U.S. missile strikes against Iranian nuclear facilities, oil prices rose by over 2% in a single day, as investors started to worry about the worst case.
By ClearView Energy Partners, oil can open significantly higher than $77 a barrel, and if Iran even attempted seriously to shut the strait, prices would reach over $100 a barrel, Goldman Sachs and Rapidan Energy analysts contend.
Read this much later: Why does Trump think tariffs are good for America? Here’s what experts have to say about the new president’s tariff moves
What it means for you and the economy
Barring oil getting near $100 a barrel or more. That won’t be a figure on Wall Street—it could hit your wallet in the face. Here’s how:
- Gas pump prices would skyrocket, easily reaching $5 or more per gallon.
- Transportation and shipping costs would be higher, pushing food, goods, and services prices upward.
- Flying could get more expensive because the cost of jet fuel increases.
- Inflation could pick up where the U.S. had finally started making headway in lowering it.
It is not just a matter of oil, though. Iran blocking the strait would make international shipping routes more chaotic than they already are.
What’s going to happen next?
A full closure is not going to happen, most experts believe, at least not in the near future. Iran’s economy is already fragile, and closing the Strait of Hormuz would just exacerbate problems. That being said, heightened harassment of tankers, e.g., slowdowns or minor attacks, is still possible.
The U.S. and its allies are monitoring events closely. The officials are also appealing to China, Iran’s biggest oil buyer, to put pressure on Tehran to stand down.
Bottom line? Watch oil prices and news from the Persian Gulf because even a small escalation could have gigantic effects on your next visit to the gas station.
