Introduction
A closure of the Strait of Hormuz would trigger a severe global economic shock, disrupting energy supplies, escalating oil prices, and destabilising international trade routes.
Why is the Strait of Hormuz significant?
The Strait of Hormuz is a narrow passage between Iran and Oman and is one of the most strategically important maritime chokepoints in the world.
The Strait exports approximately 20% of the world's yearly oil consumption, which translates to 21 million barrels per day, alongside LNG (liquefied natural gas) from Qatar. The economies of Saudi Arabia, Iraq, Kuwait, and the UAE are also heavily reliant on this passage for exporting crude oil.
Tensions in the region have periodically raised concerns about the Strait’s closure. In past decades, during conflicts such as the Iran-Iraq war and various standoffs between Iran and Western powers, threats to restrict access to the Strait have caused sharp spikes in oil prices. The Strait’s narrowest point is only 21 miles, so even minor military escalations or blockades could halt traffic and have immediate global consequences.
Recent geopolitical frictions such as U.S. sanctions on Iran, attacks on oil tankers, and regional instability have disrupted the Strait, exposing the vulnerability of global trade. The scenario of a partial or complete closure is therefore more than theoretical; it represents a tangible risk to global economic stability.
What are the possible repercussions of a closure?
The economic fallout from a closure of the Strait of Hormuz would be swift and severe. Oil prices could surge above USD 150 - 200 per barrel, reminiscent of the 1970s oil crisis. This would result in widespread inflation, with fuel, food, and transport costs soaring globally. For energy-importing nations such as China, India, Japan, and South Korea, which are heavily reliant on Gulf oil, energy shortages could paralyse manufacturing and transport sectors.
Other traded commodities and manufactured goods would also face disruption. Shipping routes through the Arabian Sea would be forced to reroute, resulting in increased transit times and freight costs. Marine insurance premiums would escalate sharply, potentially making certain shipments economically unviable. In turn, Gulf economies would face a dramatic decline in export revenues, forcing them to draw on sovereign wealth reserves and cut public expenditure.
Financial markets would respond with heightened volatility. Investors would likely flock to traditional safe havens such as gold, the U.S. dollar, and government bonds. Stock markets in oil-importing nations would likely contract, due to higher energy costs and declining investor confidence.
In legal terms, the disruption could trigger force majeure clauses across international contracts, particularly in shipping, energy supply, and commodity trading. Energy companies might seek emergency relief from governments under strategic petroleum reserve frameworks, while insurers and underwriters would face disputes over liability in the event of attacks or blockades. Trade lawyers and international arbitration specialists are likely to see an increase in claims arising from the non-performance of supply obligations.
Future Outlook
The closure of the Strait of Hormuz would constitute an unprecedented shock to the global economy. It would disrupt energy markets, inflate commodity prices, and destabilise global trade flows. While regional powers and major economies have sought to mitigate such risks through alternative pipelines and diversified energy routes, these measures are insufficient to fully replace the Strait’s capacity.
For the legal and business community, such a closure would require rapid crisis management, contractual renegotiation, and dispute resolution across multiple jurisdictions. The event would serve as a stark reminder of the delicate balance between geopolitics and global commerce, where a single maritime chokepoint can significantly impact the economic well-being of nations.