The conflict between Israel and Iran continues, and the spotlight is on the Strait of Hormuz. It is of the most important chokepoints in global trade, and countries, including India are worried about the potential supply disruption or closure of this critical oil chokepoint. Thus far, the Strait of Hormuz has never been closed before, and analysts believe it is very difficult for Iran to shut it completely as it will hit Iran’s economy along with India and global energy.
Blocking Strait of Hormuz a key worry
“The Strait of Hormuz must not be allowed to be shut down,” Chairman of maritime company Safesea Group Anchan said to Reuters. He added, “blocking the Hormuz is no less than choking the people at large of the region, at a time when even the airspaces are also closed.”
An official from the European Union’s naval mission Aspides said on Saturday that vessels have been receiving VHF transmission from Iran’s Revolutionary Guards saying “no ship is allowed to pass the Strait of Hormuz”.
Tehran has not released any official comment so far announcing the closure. However, attacks throughout the region, including on two vessels traveling through the Strait of Hormuz, have restricted countries’ ability to export oil to the rest of the world.
Brent jumps 7.8% to $78.55 as Strait of Hormuz fears resurface
Fearing the supply disruption, Brent crude climbed to $78.55 per barrel, up 7.8% from $72.87
The Strait of Hormuz is crucial as about 20% of global oil supply,that is around 15 million barrels per day, pass through it.
Earlier in mid-February, Iran had temporarily restricted parts of the Strait of Hormuz for conducting military drills, that caused oil to rise about 6% in the days that followed.
Why the Strait of Hormuz matters for India and global energy markets
The waterway handles nearly 20% of global crude oil and 20% of global LNG consumption. For India, the Middle East accounts for 17% of its exports and supplies 55% of its crude oil. Nearly 38% of India’s worker remittances also come from the region. In FY24 alone, remittances from the Middle East stood at $45 billion.
Jefferies noted If the Strait remains blocked, an estimated 10–13 million barrels per day of crude exports, or 10–13% of global demand, could get disrupted. Around 15% of global LNG supplies could also be affected.