Iran’s parliament has formally approved a plan to close the Strait of Hormuz. This strategic shipping lane, through which nearly half of the world’s container traffic passes, stretches between Iranian-controlled Qeshm Island to the north, and UAE to the south. This decision comes as hostilities continue to grow between Iran and the United States. It comes on the heels of very recent U.S. military strikes against Iranian nuclear facilities.
The Strait of Hormuz most recently gained attention as one of the world’s most critical maritime choke points. Every day, roughly 20 million barrels of crude oil – roughly 20 percent of global consumption – flow through it. By the end of 2024, this emerging waterway had proven its mettle as a fab fledged trade corridor for crude oil. Its importance goes far beyond the economic impacts felt across the region and booms throughout international markets.
U.S. Secretary of State Antony Blinken recently stated that the United States has “serious, serious concerns” about Iran’s intentions. In response to a question, he stressed that the United States has multiple means to address any Iranian move to close the strait. Such an action would be completely irresponsible and dangerous. It will throw the global oil supply out of whack and send oil prices through the roof. Analysts predict that if the Strait of Hormuz were to be closed for an extended period, oil prices might surge above $100 per barrel.
Iran’s foreign minister has responded to these developments, asserting that Iran “reserves all options to defend its sovereignty.” This statement was made amidst a backdrop of recent U.S. airstrikes against three major Iranian nuclear facilities, further raising the stakes. Iran’s supreme national security council would have the last say on closing the strait. They will weigh all of the economic costs and benefits against the country’s national interests.
Iran is the third-largest oil producer in OPEC, with production of roughly 3.3 million bpd. Its exports are impressive, reaching record highs of at least 1.6 million barrels a day, with almost 80% exported to China. China’s robust economic relationships with Iran add further complexity to the geopolitical picture. As Iran’s most important oil buyer, China benefits from good ties with the Islamic Republic.
As Senator Marco Rubio has warned, any move by Iran to close the Strait of Hormuz would be “economic suicide.” He stressed that Iran’s oil exports depend on this key maritime corridor. As evidenced by analyses from shipping experts such as Bob McNally, disruptions can last much longer than expected. They can intimidate, we believe, shipping through Hormuz for much longer than the market believes possible,” he said.