The Strait of Hormuz, through which one-third of the world’s oil passes, is one of those key chokepoints. Against a backdrop of increasing hostility between Iran and Israel, it is once again in the spotlight. This long, narrow arm of the sea is part of the Persian Gulf. It is further unique in that it is geographically sandwiched between Iran to the north, and the United Arab Emirates and Oman to the south. Its strategic importance is equally vast. This critical SNIP route for American oil exports now brings over 20% of the world’s oil supply here.
In recent weeks, the threat of Iran blocking the Strait of Hormuz has resurfaced, fueled by ongoing conflicts and geopolitical uncertainties. As we shared in the first post in this series, analysts have predicted that closing this critical passage would be catastrophic for global oil supplies. This closure would likely precipitate an increase in oil prices. A united international community—from China and Korea to the US and the EU—is watching the situation intently. The truth is, they know the Strait is more than a shipping lane—it’s the pulse that keeps the global energy market alive.
Iran has threatened to close the Strait of Hormuz in retaliation to international pressure before. The renewed discussions surrounding its potential blockade come at a time when markets are already reeling from various economic challenges, including the implications of US President Donald Trump’s recent criticisms of the Federal Reserve’s credibility.
“US President Trump’s fresh attack on the Fed’s credibility” – FXStreet
This grave critique has led to prolonged weakness of the US Dollar, which has turned currency markets into a veritable dumpster fire. The dollar’s depreciation is partly responsible for the move higher in pairs like EUR/USD and GBP/USD.
“GBP/USD stays firm above 1.3700, near fresh multi-year highs” – FXStreet
“EUR/USD consolidates gains near 1.1700 ahead of US data” – FXStreet
With the weakening of the US dollar, the critical influence over commodity prices (gold specifically) is quite apparent. Gold prices have had positive bias amidst this directional market tide but do not have solid bullish impetus.
“Gold price retains its positive bias amid a broadly weaker USD; lacks bullish conviction” – FXStreet
The geopolitical tensions in and around the Strait of Hormuz have flared further with the escalated Israel-Iran conflict. Experts point out that should Iran at any point try to close off this waterway, things would quickly escalate into a much larger scale military showdown. The implications would not only disrupt oil supplies but reverberate throughout global economies that rely heavily on steady oil flow.
The risk for almost certain conflict in such a strategically crucial area has both traders and policymakers very concerned. Oil market analysts are concerned at what havoc could be wrought by such Iranian threats. They argue that these kinds of disruptions would suddenly drive up prices and endanger macroeconomic stability.