The Strait of Hormuz, a narrow body of water between Iran and the Arabian Peninsula, has once again returned to the headlines. Fears for global markets have been rekindled by its continued importance. This strategic waterway is located squeezed between Iran to the north and the United Arab Emirates and Oman to the south. It is a crucial lifeline for global commerce, in particular for oil exports, instead of a mere convenient maritime detour. The current war between Israel and Iran has sharpened those fears. So, no surprise that many are concerned that Iran would attempt to close this intimate artery, an act that would cripple the world oil supply.
Market participants are keeping a wary eye on the situation as tensions flare. Previously, Iran either threatened or otherwise indicated it would shut down the Strait of Hormuz. Recent geopolitical developments have set those fears ablaze again. The looming closure of this waterway is one of the biggest threats to oil supply chains. Further, it puts at risk the hard-won progress in the overall stability of the global economy. Those experts sounded alarms, arguing that the ramifications of Iran’s possible moves would be drastic. These impacts could send shockwaves throughout energy markets and farther afield.
The Strait of Hormuz is a strategic international chokepoint, through which about 20% of the world’s oil supply flows. The region has incredible importance. With crude oil being one of the most actively traded commodities and a fundamental driver for many currency pairs, any disruption there will create immediate, drastic political shifts. The US Dollar is down significantly in recent days, and this trend recently accelerated with Donald Trump’s latest assault on the Fed’s credibility. This change is already wreaking havoc on some of the most significant currency pairs like EUR/USD and GBP/USD.
FXStreet noted the current state of the GBP/USD, stating, “GBP/USD stays firm above 1.3700, near fresh multi-year highs.” Market volatility has already started reacting to geopolitical conflicts. For instance, the ongoing crisis in the Strait of Hormuz looms large.
Responding to the weaker dollar, analysts have been watching the price of gold closely to gauge market reaction. This trend is especially apparent against the backdrop of today’s uncertainties. According to FXStreet, “Gold price retains its positive bias amid a broadly weaker USD; lacks bullish conviction.” Taken together, these trends indicate that investors are flocking to safe-haven assets as they come to terms with possible volatility in oil markets.
The danger posed by Tehran has increased significantly under the shadow of recent American military attacks across the area. This most recent development only increases the stakes of an already highly charged situation. The question on many minds remains: “Could Iran block the Strait of Hormuz? Why Oil is on edge after US strikes” – FXStreet. The implications of such an event are alarming. A blockade could not only disrupt oil shipments but incite further military action in an already volatile area.