Global oil markets are on edge in response to the growing Iran-Israel conflict. This war is especially concentrated in the strategically critical waters of the Strait of Hormuz. This geographically important waterway serves as the only link between the Gulf and the Arabian Sea. It sits at the crux of international maritime trade, bordered by Iran to the north and Oman and the United Arab Emirates to the south.
The Strait of Hormuz is an extremely important maritime chokepoint today. Nearly one-fifth of the planet’s oil traverses this critical corridor. This important corridor transports hundreds of tankers. They carry oil and gas from big Middle Eastern oil exporters to markets all over the world. After all, the recent conflict raises fears that Iran would threaten oil shipments. If Tehran attacks infrastructure or shipping in the strait, it would immediately stop the transit of millions of barrels of oil per day.
With the unprecedented situation as tensions have flared, market analysts are watching every development. Saul Kavonic, head of energy research at MST Financial, commented on the current market reaction, stating, “What we see now is very initial risk-on reaction. Over the next day or two, the market will need to factor in where this could escalate to.”
And though violence has broken out in recent days, experts say peace could return equally fast. Vandana Hari of Vandana Insights remarked, “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.” Nevertheless, she cautioned about the potential ramifications: “It could spiral out into a bigger war that disrupts Mideast oil supply.”
The unrest has triggered a closer look at impacts from current shipping operations in the area. Even today, hundreds of tankers are in transit at any given time toward or away from the Strait of Hormuz. Such a big disruption in this critical chokepoint could severely affect global oil prices and supply chain.