Strait of Hormuz: a chokepoint like no other

Iran’s parliament has approved a measure to close the Strait of Hormuz, a vital global trade route for Middle Eastern oil exports. This followed US bombing of its nuclear sites over the weekend.

After falling for most of this year, oil prices hit a five-month high on Monday. fears are mounting that any extended disruption could send energy prices soaring and reignite inflation across major economies. This has once again raised the prospect of stagflation – a difficult mix of high inflation and low growth.

The Strait of Hormuz, a 33-kilometre-wide passage between Iran and Oman, connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. Despite its modest size, it plays an outsized role in the global energy system. According to the US Energy Information Administration, nearly 20 million barrels of crude oil, condensates, and refined fuels pass through the strait daily – roughly one-fifth of global oil consumption.

The strait is also a critical artery for liquefied natural gas (LNG), particularly from Qatar, one of the world’s largest LNG exporters. With shipping lanes just two miles wide in each direction, the strait is both congested and vulnerable. Any disruption – whether from military conflict, sabotage, or electronic interference – can have immediate and far-reaching consequences.

Israel-Iran conflict: a flashpoint for global markets

The latest crisis was triggered by a series of missile exchanges between Israel and Iran, following months of covert operations and proxy skirmishes. In response to Israeli strikes on Iranian military infrastructure. After the US joined the military campaign using so-called “bunker buster” bombs, Tehran has issued a formal threat to close or restrict access to the Strait of Hormuz. Former Iranian economy minister Ehsan Khandouzi recently suggested that all oil and LNG tankers should require Iranian permission to transit the strait – a move that, if enforced, would effectively give Tehran control over a significant portion of the world’s energy supply

Tanker rates for routes from the Middle East to Asia had already surged by more than 20% in recent days, and some shipping companies have begun rerouting vessels or increasing onboard security.

Electronic interference with navigation systems has also been reported, further complicating transit through the already perilous corridor.

The inflation domino effect

The economic implications of a prolonged disruption in the Strait of Hormuz are profound. A full-scale closure could push prices toward $150 or higher, analysts suggest. For central bankers, this would add an additional layer of complexity to an already difficult situation charting the route ahead when they make their interest rate decisions.

Natural gas markets, particularly in Asia and Europe, are also bracing for volatility. Higher energy prices feed directly into inflation by raising transportation, manufacturing, and utility costs. For countries still recovering from the inflationary shocks of the early 2020s, this could derail progress and force central banks to reconsider interest rate cuts. In the US, the Federal Reserve has already signalled a pause in its easing cycle, citing “geopolitical risks to price stability.” In Europe, inflation expectations have ticked upward for the first time in months.

Developing economies, especially in Asia and Africa, are particularly vulnerable. Many rely heavily on Middle Eastern oil and gas imports and lack the financial buffers to absorb sudden price spikes. Bangladesh, for instance, has already reported fuel shortages and rolling blackouts due to delayed shipments through the strait.

Strategic calculations and global response

The international community is watching closely. At the recent G7 summit in Alberta, leaders issued a joint statement urging de-escalation and pledging to “coordinate efforts to safeguard energy market stability”.

The US Navy has increased its presence in the Gulf, and diplomatic channels are reportedly open between Washington, Tel Aviv, and Tehran in an effort to prevent further escalation.

Yet the strategic calculus for Iran is complex. While closing the strait would hurt global markets, it would also damage Iran’s own economy, which depends on oil exports. Moreover, such a move could provoke a further military response from the US or its allies, potentially widening the conflict.

One of the most alarming aspects of the Strait of Hormuz crisis is the lack of viable alternatives. While some Gulf states have developed pipelines that bypass the strait – such as the UAE’s Habshan-Fujairah pipeline – these routes can only handle a fraction of the region’s total output. The vast majority of oil and gas exports from Saudi Arabia, Iraq, Kuwait, and Qatar still rely on Hormuz.

This structural dependency means that even the threat of disruption can have outsized effects on global markets. Unlike other chokepoints, such as the Suez Canal or the Panama Canal, there is no easy detour around Hormuz.

Looking ahead

As the Israel-Iran conflict continues to unfold, the Strait of Hormuz remains a geopolitical powder keg with the potential to ignite a global economic crisis. Energy markets are already on edge, and the longer the uncertainty persists, the greater the risk of inflationary spillovers.

For now, the world watches and waits – hoping that diplomacy can prevail over brinkmanship, and that the narrow waters of Hormuz do not become the fault line of the next global recession.