The escalating tensions between Iran and Israel, culminating in recent military exchanges, present a significant threat to global energy markets, particularly given the strategic importance of the Strait of Hormuz. As you’ve outlined, while a complete, sustained closure of the Strait by Iran is historically improbable due to the severe economic and geopolitical consequences for Tehran itself, any form of disruption carries substantial risks.
Strait Of Hormuz
The Strait of Hormuz is recognized as one of the world’s most vital maritime chokepoints, a narrow waterway connecting the Persian Gulf to the Gulf of Oman and, subsequently, the Indian Ocean. Its central role in global energy trade is undeniable.
In 2023, an estimated 20.9 million barrels per day (b/d) of petroleum liquids transited through the strait, according to the U.S. Energy Information Administration. This volume accounted for approximately 20% of global consumption and over a quarter of all seaborne oil exports. Despite its strategic sensitivity and the often-volatile geopolitical landscape of the Middle East, the Strait of Hormuz has remarkably remained operational through some of the most turbulent periods in modern history.
Risk Overview: The historical precedent of the Strait of Hormuz demonstrates its enduring resilience amidst conflict. During the Iran-Iraq War (1980–1988), particularly the “Tanker War” phase, both nations deliberately targeted oil tankers. Despite this intense period of conflict, the Strait itself was never fully closed. The international community, led by the U.S. and its allies, undertook significant naval escort and mine-sweeping operations to ensure the uninterrupted flow of oil, underscoring the global imperative to maintain the route’s accessibility.
Iran has frequently leveraged the threat of closing the Strait in response to international sanctions or military pressure, utilizing it as a strategic deterrent. However, a total closure would signify an unprecedented escalation with profound and far-reaching consequences, not only for global energy markets but also for Iran itself. The country heavily relies on the Strait for exporting its oil and maintaining vital economic lifelines, particularly with Asian markets.
Surge in Oil Prices
Recent developments, primarily escalating tensions in the Middle East, have triggered a sharp surge in oil prices. Brent crude, a global benchmark, rose from the mid-$60s to the mid-$70s per barrel as of Friday, June 13, reinforcing an upward momentum that had begun earlier in the week. This price spike drew parallels with the market reaction during the early stages of the Russia-Ukraine conflict, when oil prices climbed even higher due to disruption risks associated with Russia’s significant role as an oil producer.
The current rally initially appeared to stem from a localized but volatile threat landscape, most notably the perceived risk of a closure of the Strait of Hormuz, a vital chokepoint for global oil flows. However, market sentiment has since begun to ease. As of today, the uninterrupted passage of tankers through the Strait of Hormuz has reduced immediate fears, leading to a modest price pullback and suggesting that the geopolitical risk premium in oil prices may have peaked in the near term.
Nonetheless, the risk of broader regional escalation remains a key concern for the oil market. A worst-case scenario involving sustained conflict and disruption of flows through the Strait of Hormuz could trigger a severe supply shock. According to JPMorgan, such an escalation could remove well over 2.1 million barrels per day (b/d) from the market and push Brent crude prices sharply higher, potentially exceeding $100 per barrel, with some forecasts even suggesting prices could reach $120-$130 per barrel in such an extreme scenario. This highlights the inherent fragility of global oil supplies to geopolitical events in this critical region.
Port Infra At Risk
Recent reports indicate that Israeli strikes have targeted defenses near Iran’s key port of Bandar Abbas, a strategically vital location adjacent to the Strait of Hormuz. While Iran maintains that its port operations remain unaffected and the National Iranian Oil Refining and Distribution Company asserts its refining and storage facilities are fully operational and undamaged, the incident has introduced renewed uncertainty regarding oil flows.
Any significant damage to Bandar Abbas, or even sustained threats, could disrupt oil vessel traffic, given its proximity to the Strait of Hormuz, through which a substantial portion of global seaborne oil passes.
The risk of missile attacks on Iranian oil port infrastructure is already manifesting in increased operational uncertainty, particularly evidenced by a rise in estimated waiting times at Kharg Island port, Iran’s main oil export terminal. The waiting period for vessels at Kharg Island has significantly increased to eleven days as of before the end of last week, a notable jump from five days at the beginning of May. This surge in waiting times is particularly concerning as it occurred without a corresponding increase in port congestion, as indicated by vessel count, suggesting that the delay is likely due to heightened caution or operational adjustments rather than physical capacity limitations.
Did you subscribe to our daily Newsletter?
It’s Free Click here to Subscribe!
Source: Breakwave Advisors
