Indeed, global oil prices catapulted following Tuesday’s outbreak of military hostilities between Israel and Iran. The Strait of Hormuz is the only maritime exit for several key oil producers. Located to the north of Iran and to the south of Oman and the United Arab Emirates (UAE), it has become an important flashpoint in these changes. This extremely narrow 1.5 mile strategic waterway connects the Gulf with the Arabian Sea and is very important for international energy transport.
Nearly one-fifth of the world’s oil transits through the Strait of Hormuz. This reality contributes to the strait’s status as one of the most critical shipping corridors in the globe. The risks posed by the potential for disruption in this area are highly concerning. Iran does have a demonstrated and considerable capability to target regional infrastructure or commercial shipping within the strait. Such actions would have disastrous effects on global oil supplies, with millions of barrels threatened each day.
In fact, there are currently a few dozen tankers on their way to or from the Strait of Hormuz. So too do all major oil and gas producers in the Middle East, who rely heavily on this key transit passage. It allows them to export their energy resources to global markets. As the situation continues to escalate, experts are cautioning that if conflict were to erupt, it could trigger widespread supply outages in oil.
Saul Kavonic, head of energy research at MST Financial, tweeted his thoughts on the initial market reactions.
“What we see now is very initial risk-on reaction. But over the next day or two, the market will need to factor in where this could escalate to,” – Saul Kavonic, MST Financial.
Vandana Hari, founder of Asia-based comment VANDANA INSIGHTS, had a similar take on how crazy the market is.
“It’s an explosive situation, albeit one that could be defused quickly as we saw in April and October last year, when Israel and Iran struck each other directly,” – Vandana Hari, Vandana Insights.
She cautioned that the fighting could quickly spill over into a broader regional conflagration. This latest escalation poses a serious threat to the stability of the Mideast oil supply.
“It could also spiral out into a bigger war that disrupts Mideast oil supply,” – Vandana Hari, Vandana Insights.
With stakeholders watching these changes closely, suppliers and consumers are preparing for possible impacts across energy markets. The situation in the Strait of Hormuz is precarious and can change at a moment’s notice, affecting oil prices and availability across the globe.