US-Israel Conflict with Iran Threatens Strait of Hormuz, Spiking Global Oil Prices

The conflict between the United States and Israel against Iran has extended to the Strait of Hormuz, one of the world's most critical energy routes, leading to a sharp increase in oil prices.

Maritime traffic through this waterway, which handles one-fifth of the world's consumed oil and a large volume of gas, has nearly halted following Iran's attacks on oil tankers in the region.

A commander from Iran's Revolutionary Guard Corps (IRGC) warned on Monday that the waterway has been closed and any vessel attempting to pass through will be burned.

At least five tankers have been damaged around the Strait of Hormuz, which separates Iran and Oman, resulting in two crew members killed and approximately 150 ships stranded. Amid escalating tensions following the joint US-Israel attack on Iran on Saturday, oil prices, which stood at $73 per barrel on Friday, rose above $79.40 by Monday.

Michelle Bockmann, a senior maritime intelligence analyst at Kpler, stated, 'Traffic here has decreased by at least 80 percent.' She added that the shipping industry is already facing a significant increase in freight costs for routes exiting the Middle East and Gulf region.

According to Cormac Mac Garry, Director of Maritime Intelligence and Security Services at Control Risks, sailors received a message via the international distress frequency on Saturday announcing the closure of the Strait of Hormuz from Iran. Every ship in that area heard it... and that message was enough for most ships to stop.

Kepler, a ship tracking service, showed only limited traffic in the Strait of Hormuz on Sunday, mainly involving vessels flying the flags of Iran and its major trading partner, China.

• How does the closure of the Strait of Hormuz affect oil prices?

According to Bockmann, there is also a possibility that some ships have passed through the Strait of Hormuz by turning off their Automatic Identification System to evade tracking.

Mac Garry stated that Iran completely closing the Strait of Hormuz would be like tightening a noose around its own neck. 'If they attack commercial vessels, it will provoke the Gulf countries to join the war, and that would be a very big step for Iran,' Mac Garry said.

'It is completely impossible for them to keep the waterway closed for a long time,' he added, 'I am more concerned about the regional supply chain.'

However, according to Kepler, most commercial operators, major oil companies, and insurance companies have effectively withdrawn from this corridor. Insurance premiums had already reached a six-year high before the conflict.

Rachel Zimba, a Senior Fellow at the Center for a New American Security, said, 'The pressure on energy infrastructure in the Gulf has certainly increased overnight, especially with Qatar halting LNG production as a precaution. The reluctance of tankers to enter the Gulf sends a message about how great the risk is here.'

• The US is not immune

According to Kepler, Iran increased its oil exports to a multi-year high in February, anticipating the US-Israeli attacks. Gulf nations were also moving their oil supplies forward, which helped balance short-term supply issues, Zimba explained.

The majority of crude oil shipped through the Strait of Hormuz goes to Asia, with China, India, Japan, and South Korea accounting for about 70 percent, according to the US Energy Information Administration (EIA).

Other energy products facing supply pressure besides oil include jet fuel and Liquefied Natural Gas (LNG). About 30 percent of Europe's jet fuel supply originates or passes through the Strait of Hormuz, while one-fifth of global LNG supply passes through this waterway.

Although the US is no longer dependent on Middle Eastern oil and it may take a few weeks to affect pump prices, it is not immune to supply disruptions.

David Varik, Executive Vice President of the supply chain platform Overhaul, told Al Jazeera, 'The situation is very volatile.' As companies reroute their vessels around the Cape of Good Hope in Southern Africa, they face longer delivery times and increased costs.

'War risk insurance and additional emergency insurance are adding thousands of dollars,' Varik said. 'This is the main time for bringing in raw materials and planning holidays... and any disruption at this time is not good for the supply chain.'

There may also be beneficiaries of this disruption. As a net energy producer, Zimba noted that rising prices will benefit US oil producers. 'The consumer sector loses, but producers benefit. The question is: how long will this last? It is difficult for such an intense situation to last long,' she said.

• Where is the Strait of Hormuz?

The Strait of Hormuz is located between Oman and the UAE on one side, and Iran on the other. It connects the Arabian Gulf to the Gulf of Oman and the Arabian Sea beyond.

At its narrowest point, it is 33 kilometers wide, with shipping lanes only 3 kilometers wide in each direction, making it highly vulnerable to attack.

Despite its narrowness, the channel allows passage for the world's largest crude oil tankers. Major oil and gas exporters in the Middle East depend on it to supply international markets, while importing nations rely on its uninterrupted operation.

• How much oil and gas passes through the Strait of Hormuz?

According to the US Energy Information Administration (EIA), approximately 20 million barrels of oil daily, representing about $500 billion in global energy trade in 2024, passed through the Strait of Hormuz.

The crude oil passing through comes from Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the UAE. The Strait of Hormuz also plays a significant role in LNG trade. According to the EIA, about one-fifth of global LNG shipments passed through this corridor in 2024, with Qatar having the largest share.

• Where does it all go?

The Strait of Hormuz handles both the export and import of oil and gas. Kuwait and the UAE import supplies from sources outside the Gulf, including shipments coming from the US and West Africa.

EIA estimates suggest that 84 percent of crude oil and condensate shipments passing through the Strait of Hormuz in 2024 were destined for Asian markets. A similar pattern is seen in gas trade, with 83 percent of LNG passing through the Strait of Hormuz reaching Asian destinations.

Last year, China, India, Japan, and South Korea imported a total of 69 percent of all crude oil and condensate passing through the Strait of Hormuz. Their factories, transportation networks, and power grids depend on the uninterrupted energy supply from the Gulf. Rising oil prices will severely impact China, India, and many countries in Southeast Asia.

• How does the closure of the Strait of Hormuz affect oil prices?

According to Iranian state media, the final decision to close the Strait of Hormuz must be made by the country's Supreme National Security Council and approved by the government.

However, energy traders have been on high alert in recent weeks amid rising tensions in the region, home to the world's largest oil and gas reserves. Moyu Sule, a senior crude oil analyst at Kepler, told Al Jazeera on Saturday that traffic through the Strait of Hormuz has sharply declined since the conflict began.

'Similarly, the number of ships anchored in both the Gulf of Oman and the Arabian Gulf has surged as ship owners worry about maritime security risks following Tehran's warning of a potential waterway closure,' she said.

'The Strait of Hormuz is crucial for the global energy market as about 30 percent of the world's seaborne crude passes through this waterway. Additionally, about 20 percent of global jet fuel and about 16 percent of gasoline and naphtha flow through this Strait of Hormuz,' Moyu stated.

'An oil tanker was attacked off the coast of Oman on Sunday, clearly signaling that the conflict has escalated and the target has shifted from military facilities to energy assets.'

According to maritime data, at least 150 tankers carrying crude oil and LNG have dropped anchor in the open Gulf waters beyond the Strait of Hormuz. Based on data from the Marine Traffic platform, Reuters news agency estimates that these tankers were gathered in the open waters off the coasts of major Gulf oil producers, including Iraq and Saudi Arabia, as well as LNG giant Qatar.

In addition, the UK's Maritime Trade Operations reported on Sunday that it was aware of significant military activity in the Strait of Hormuz and had received a report of an incident two nautical miles north of Khasab, Oman.

Kepler's Moyu stated that a much wider range of energy infrastructure is now at risk. 'This is expected to accelerate oil price increases and could keep prices high for longer, possibly longer than during the conflict last June.'

Ali Vaez, Iran Project Director at the International Crisis Group, said, 'The closure of the Strait of Hormuz will immediately disrupt one-fifth of globally traded oil, and prices will not just rise; there will be a terrifying surge in prices due to fear.'

'The shockwaves will extend far beyond the energy markets, tightening financial conditions, increasing inflation, and pushing weaker economies into recession within a few weeks,' he added. When the US and Israel bombed Iran last June, there was no direct disruption to maritime activity in the region.

• What does this mean for the world economy?

Any disruption to energy flows through Hormuz will affect the world economy by increasing fuel and factory costs. Hamad Husain, a climate and commodities economist at Capital Economics in the UK, said, 'For the world economy, a sustained increase in oil prices will put further pressure on inflation.'

'If crude oil prices reach $100 per barrel and remain at that level for some time, it could add 0.6-0.7 percent to global inflation,' he said, noting that natural gas prices would also rise.

'This could slow down the pace of monetary easing by major central banks, especially those in emerging markets, where policymakers are more sensitive to fluctuations in commodity prices,' he added.