The Strait of Hormuz, that 30-mile-wide choke point between Iran and Oman, is unequivocally the world’s most critical oil artery. With approximately 20 million barrels of crude passing through it daily, it accounts for a staggering 20% of global supply and a quarter of all seaborne oil trade. The recent escalation on June 22, 2025, with U.S. military strikes on Iranian nuclear facilities and Tehran’s retaliatory threat to close the Strait, has thrust this vital waterway into the global spotlight once more.
The Supply Shock Scenario
The U.S. airstrikes targeting Iran’s Fordo, Natanz, and Isfahan nuclear facilities, aimed at “decapitating” Tehran’s nuclear ambitions, have been met with Iranian counter-threats to block the Strait of Hormuz. This crucial maritime passage, through which approximately 20 million barrels of oil and 20% of global LNG exports pass daily, is vital for global energy supply. Even the mere possibility of a disruption has already added an estimated $10–$30 per barrel premium to crude prices, pushing Brent towards $110. A full closure, though potentially detrimental to Iran itself due to its reliance on the Strait, could see prices spike to $120 or higher.
The supply crunch is further exacerbated by Iran’s role as OPEC’s third-largest producer, pumping 3.3 million barrels daily, with 1.84 million barrels exported to China in May. Any disruption to Iranian output would strain an already tight market. OPEC+ currently holds a spare capacity of around 4 million barrels per day (bpd), largely concentrated in Saudi Arabia and the UAE. While this offers some buffer, a significant or prolonged disruption could quickly deplete these reserves and lead to a severe supply deficit.
The Geopolitical Tightrope
The diplomatic landscape has deteriorated significantly. The U.S. has expanded its sanctions regime, now targeting Hong Kong-based firms and Houthi-linked entities, directly addressing Iran’s proxy network. European allies are pushing for Iran to completely abandon uranium enrichment, a demand Tehran views as a non-starter, considering its nuclear program vital for its survival. With the 2015 nuclear deal’s revival effectively dead, the U.S. and Iran are caught in a escalating cycle of strikes, sanctions, and rhetorical saber-rattling.
For investors, this situation necessitates a careful “wait and see” approach. While such tensions are cyclical, the current stakes are higher given the global reliance on Middle Eastern energy. A closure of the Strait of Hormuz would severely test global resilience, while any de-escalation could trigger a sharp drop in oil prices. A key question for the market remains: how much of this geopolitical risk is already factored into current prices?
Risks to Avoid
Investors navigating this volatile environment should be wary of several pitfalls:
- Overreacting to Noise: Markets often overprice immediate threats, such as a temporary Strait closure, but tend to underprice long-term shifts in supply dynamics. Investors should avoid knee-jerk trades and instead focus on underlying market fundamentals.
- Diplomatic De-escalation: A sudden ceasefire or unexpected sanctions relief could lead to a sharp correction in oil prices, wiping out short-term gains made on the back of tensions.
- Demand Destruction: A global economic recession, as seen in 2020, could negate the impact of supply shocks. Investors must closely monitor global economic indicators for signs of a slowdown that could reduce overall oil demand. The World Bank currently forecasts global growth to slow to 2.3% in 2025, but a global recession is not expected. However, trade tensions and policy uncertainty are significant headwinds.
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Source: Ainvest
