Iran moves to block Strait of Hormuz: What this will mean for India, Tehran, world, in 4 points
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Iranian parliament recommends Strait of Hormuz closure: What may be in store for energy markets, India’s oil imports
Iran has in the past threatened to close the Strait of Hormuz on multiple occasions, but has never actually done it. The heightened risk of the closure is bound to raise concerns globally, including in India, particularly with regard to oil and gas supply security. Oil prices will surge when the markets open Monday over the possibility of the strait’s closure. But despite some energy infrastructure being hit in the conflict over the past few days, the most critical oil andGas supply infrastructure in the region is reported to be safe and export routes open and functional. India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. The country is also among the top importers of LNG, depending on importing to meet around half of its natural gas demand. The importance of the Strait is well-stated by The Indian Express. The region accounts for a significant share of India’S energy imports. The West Asian region is a critical cog in the international oil and Gas flows.
Iran has in the past threatened to close the Strait of Hormuz on multiple occasions, but has never actually done it. Notwithstanding that, the heightened risk of the closure is bound to raise concerns globally, including in India, particularly with regard to oil and gas supply security, and could lead to a jump in energy prices.
The global energy market has had its eyes set on the ongoing Israel-Iran conflict as the West Asian region is a critical cog in the international oil and gas flows. Indian refiners, too, have been watching the developments closely as the region accounts for a significant share of India’s energy imports. Also, any major disruption in West Asian oil and gas exports could lead to a surge in oil and gas prices in the international market, which would also hurt India, which is counted among the world’s largest oil and gas importers with high import dependency levels.
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To be sure, the conflict has so far not really disrupted physical oil and gas flows from the region, although shipping and insurance rates have gone up notably due to higher geopolitical risk premium,according to industry sources. There are also reports that a few shipping lines are reassessing routes in the region. This could further add to the transportation cost to and from the region.
As for oil prices, benchmark Brent crude was at $77 per barrel on Friday, its highest level in nearly five months. It is likely that oil prices will surge when the markets open Monday over the possibility of the closure of the Strait of Hormuz. At May-end, Brent was languishing around $63 per barrel. But oil prices rose sharply with Israel and Iran entering into a military conflict over the past couple of weeks. However, despite some energy infrastructure being hit in the conflict over the past few days, the most critical oil and gas supply infrastructure in the region is reported to be safe and export routes open and functional.
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Energy industry insiders, trade sources, and experts appear largely unanimous in the view that the trajectory oil and gas supplies and prices take hereon amid this conflict would largely depend on whether the critical Strait of Hormuz will indeed be closed by Iran, and whether oil and gas export infrastructure in the region would remain largely unharmed.
Strait of Hormuz: World’s most critical energy trade choke point
Strait of Hormuz is a critical narrow waterway between Iran and Oman, and connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The US Energy Information Administration (EIA) calls it the “world’s most important oil transit chokepoint”, with around one-fifth of global liquid petroleum fuel consumption and global liquefied natural gas (LNG) trade transiting the strait. Much of India’s oil from key West Asian suppliers like Iraq, Saudi Arabia, and the UAE reaches Indian ports via the Strait of Hormuz. A bulk of India’s LNG imports, which come predominantly from Qatar, also come through this vital choke point.
India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. The country is also among the top importers of LNG, depending on imports to meet around half of its natural gas demand. India’s largest source of crude oil is Russia, followed by West Asian suppliers Iraq, Saudi Arabia, and the UAE. India also buys oil from other countries in the region like Kuwait, Qatar, and Oman. Indian refiners do not purchase Iranian crude as Iran’s energy sector is under US sanctions.
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According to tanker data analysed by The Indian Express, nearly 47 per cent of crude oil imported by Indian refiners in May was likely to have been transported via the Strait of Hormuz. The importance of the chokepoint for India’s energy supply and security cannot be understated.
To be sure, Tehran has over the years made such threats at various points, but has never actually closed the strait even when it fought its worst wars. That is also because given the importance of the channel for global energy trade, any such attempt could draw a strong response from regional powers and even the US. Also, given that Iran itself depends on the Strait of Hormuz for its trade, particularly oil exports to China, any blockade could impact Tehran considerably, experts pointed out.
“First and foremost, such a blockade would disproportionately harm China, which sources 47% of its seaborne crude from the Middle East Gulf, including Iranian volumes. Iran’s ability to maintain its sole major oil customer would be directly jeopardised. Additionally, Tehran has made deliberate efforts over the past two years to rebuild ties with key regional actors, including Saudi Arabia and the UAE, both of which rely heavily on the Strait for exports and have publicly condemned Israel’s actions. Sabotaging their flows would risk unraveling those diplomatic gains,” commodity market analytics firm Kpler said in a note on June 19.
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“…while the rhetoric may generate headlines, the fundamentals argue strongly against action,” the Kpler note said.
“It’s really hard to tell, but I would say it’s very unlikely for that (blockade of the Strait of Hormuz) to happen. And we’ve seen in the past, whenever there were indications or even threats that Iran might be doing this, you would hear statements from the US Fifth Fleet that they would immediately intervene and they would unblock the strait. Of course, it’s something that we need to flag as a risk,” Kpler’s head of Middle East energy & OPEC+ insights had said in a webinar last week.
Hormuz closure will hurt energy import-dependent India
Given the fact that the Iranian parliament has recommended the closure of the Strait of Hormuz, the possibility cannot be dismissed. In fact, given that the regime in Tehran is perhaps fighting for survival, Iran might just attempt something that it has only threatened in the past.
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If the critical water channel indeed is closed by Iran, Bakr said oil prices, which have been rather subdued for a few months now, could jump to over $120 per barrel, or even touch $150. Apart from supply disruption for India, the surge in international energy prices due to any such blockade would hit India due to its heavy reliance on imported oil. This makes India’s economy vulnerable to global oil price fluctuations. It also has a bearing on the country’s trade deficit, foreign exchange reserves, the rupee’s exchange rate, and inflation rate, among others.
Major oil producers like Saudi Arabia and the UAE have some alternative infrastructure in the form of pipelines to bypass the Strait of Hormuz for oil exports, but to what extent that would help would depend on the extent of the disruption to exports via the strait.
According to officials in India’s refining sector, the prospect of elevated freight rates due to high risk premium for tankers passing through the strait would lead to higher landed price of oil and gas for them, but that would still be significantly better than runaway oil prices due to any major supply disruption, which would be nearly certain if the Strait of Hormuz is shut for oil tankers.
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Express Opinion | Iraq was a warning, Iran is a rupture
Threat to West Asian oil exports: Price impact
So far, Iranian oil export infrastructure doesn’t appear to have been majorly hit by Israel, which is a relief for the energy markets and countries like India, even though they do not buy oil from Iran. This is because some Chinese refiners buy bulk Iranian oil and if Iran’s oil exports are majorly impaired due to the conflict, these buyers will be forced to scout for oil from other sources, which could lead to higher oil prices.
“If Iranian crude exports are disrupted, Chinese refiners, the sole buyers of Iranian barrels—would need to seek alternative grades from other Middle Eastern countries and Russian crudes. This could also boost freight rates and tanker insurance premiums… and hurt refinery margins, particularly in Asia,” Richard Joswick, head of near-term oil analysis at S&P Global Commodity Insights, said in a note recently.
While oil producers’ cartel OPEC has significant spare production capacity that they can use in case of a major outage of Iranian oil exports, it is important to note that much of that is with other West Asian oil producers, which are located in the broader Israel-Iran conflict zone. According to industry watchers, this spare capacity will only be helpful if other oil producers in the region are able to export to the rest of the world effectively. And that would have two key prerequisites—their own oil production and export infrastructure remains unharmed and the Strait of Hormuz remains open and safe for energy trade.
Dollar Gains in Early Trading as World Awaits Iran’s Response
The MSCI All Country World Index has pulled back 1.8% since Israel attacked Iran on June 13. But downside is likely to be limited because some market participants have been preparing for a worsening conflict. The biggest market reaction since the start of the escalation has been in oil. Traders are preparing for another surge in crude prices even as it’s unclear where the crisis goes from here. The US currency saw modest gains against the euro and most major foreign-exchange peers in Asia trading Monday. the greenback has advanced since the conflict started, but it’s a relatively small move given the US currency’s traditional role as a haven in times of turmoil. But the dollar’s downward path is probably likely to resume, strategists say. The reaction was less straightforward in the $29 trillion market for U.S. Treuries since the war began in the Middle-East, but swiftly reversed the moves. But if the increase proves to be just a knee-jerk reaction to what is perceived as short-lived involvement in the conflict, the dollar’ll resume its downward path.
“This marks a turning point for markets,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. The “question is whether US assets can still command a safe-haven premium.”
Iran has vowed to impose “everlasting consequences” for the bombing and said it reserves all options to defend its sovereignty. Meanwhile, Israel resumed its assaults, targeting military sites in Tehran and western Iran.
“It all depends on how the conflict develops, and things seem to be changing by the hour,” said Evgenia Molotova, a senior investment manager at Pictet Asset Management. “The only way they take it seriously is if the Strait of Hormuz gets blocked because that will affect oil access.”
That’s mostly because investors have expected the conflict to be localized, with no wider impact on the global economy. But moves stand to get bigger if Iran responds to the latest developments with steps such as blocking the Strait of Hormuz, a key passage for oil and gas shipments, or attacking US forces in the region, market watchers say.
Market reaction had been generally muted since Israel’s initial assault on Iran earlier this month: Even after falling for the past two weeks, the S&P 500 is only about 3% below its all-time high from February. And a Bloomberg gauge of the greenback is up a little more than 1% since the June 13 attack as of Monday Asia morning.
“We expect some risk off, but not an aggressive one,” said Diego Fernandez, chief investment officer at A&G Banco in Madrid. “The world may be a safer place without the Iranian nuclear threat, but we still need to see the Iranian reaction and how the conflict evolves.”
The US currency saw modest gains against the euro and most major foreign-exchange peers in Asia trading Monday. Crude oil futures climbed and US equity contracts slipped as the bombing fueled demand for safety and angst about energy supply. Treasuries dipped, reversing an earlier gain.
(Bloomberg) — The dollar strengthened in early trading as investors sought to shield against mounting geopolitical risks following the US strikes on Iran.
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The biggest market reaction since the start of the escalation has been in oil. Traders are preparing for another surge in crude prices even as it’s unclear where the crisis goes from here. Global benchmark Brent surged as much as 5.7% to $81.40 a barrel on Monday in Asia, before paring much of that gain in heavy trading.
Read more from the Markets Live blog: How Markets Will Trade the US Strikes on Iran
Morgan Stanley’s oil analysts said a quick resolution would allow prices to fall back to the $60’s per barrel, but continued tension could leave oil in the current range. “Fundamental disruptions to the global supply of oil with a possible hit to shipments through the region would push oil prices a lot higher from here,” they said. Other analysts at the firm flagged that a sustained rise in oil could trigger a short squeeze in the dollar, though underlying fundamentals “still suggest fading this dollar strength.”
The greenback has advanced since the conflict started, but it’s a relatively small move given the US currency’s traditional role as a haven in times of turmoil. The US dollar has been battered in recent months by President Donald Trump’s trade and fiscal policies.
“The biggest trade around at the moment is short dollar,” said Neil Birrell, chief investment officer at Premier Miton Investors. “No one likes it. But traditionally it’s the safe currency people go to, and it might just be that this turns around the fortunes of the dollar.”
What Bloomberg strategists say…
“If the greenback can maintain the gains, breaking the bearish consensus that’s been in place since the start of April, it will make other US assets look much more attractive. But if the increase proves to be just a knee-jerk reaction to what is perceived as short-lived US involvement in the Middle-East conflict, the dollar’s downward path is likely to resume.”
— Sebastian Boyd, Markets Live Blog strategist
The reaction was less straightforward in the $29 trillion market for US Treasuries since the conflict began. Yields initially sank but the moves swiftly reversed over concern about a resurgence in inflation. US Treasuries are, overall, little changed since June 13, with the yield on 10-year notes rising since then by less than two basis points to close Friday at 4.38%.
Following are comments from strategists and analysts on how they expect investors to respond on Monday:
Bob Savage, head of markets strategy and insights at BNY in New York
The US actions over the weekend will be the start of a new course for markets. Some argue that nothing matters, the action defanged nuclear ambitions of Iran, others see this as a start to widening of the conflict. The coming weeks will be pivotal as investors navigate conflicting factors such as inflation, growth, oil prices, trade tariffs and deregulation. The USD’s trajectory will be influenced by hedging activities and economic data releases, including durable goods orders and PCE.
Jayati Bharadwaj, a strategist at TD Securities
The dollar is getting a safe haven bid after a while. The source of tension is in the Middle East allowing the dollar to behave like a safe haven again. All eyes are on Iran’s response now and if they choose to obstruct the Strait of Hormuz. If they do so, it will support the safe havens and also the oil sensitive currencies.
Emmanuel Cau, head of European equity strategy at Barclays Plc
In the very near term, markets may be worried about Iran retaliation, and whether or not it blocks the Strait of Hormuz… Recent crises in the region have shown that the impact on equities from oil shocks tend to be short lived, and usually end up as medium-term buying opportunities. In fact, if the conflict results in bringing more stability and peace to the Middle East, it could be seen as bullish for risk assets over the medium term.
Anthony Benichou, cross-asset sales at Liquidnet Alpha trading desk
Trump couldn’t afford for this to drag on. If oil stays elevated too long, especially heading into the midterms, it’s a political headache. High gas prices hit Main Street, fuel inflation, and turn voters against you. So the move had to be fast, surgical, and decisive. Note how impressive the risk premium has stayed contained in oil — short-term vols have spiked, but there’s been little spillover elsewhere. If Iran were to shut down (the Strait of Hormuz), they’d be cutting off their own main revenue lifeline — effectively speeding up their own collapse.
Manish Kabra, head of US equity strategy at Societe Generale SA
Equities are likely to only see a shallow drop because central bank policies are much more accommodative than in previous oil shocks. There’s also no euphoria in markets in terms of flows. It won’t be like we had in 2022 when the S&P 500 and European stocks dropped 20%. Our take is that the Fed may actually ignore any potential oil shocks and that’s why I still say there’s a good possibility that the S&P 500 will make new highs this year.
Anthi Tsouvali, strategist at UBS Global Wealth Management
We’re definitely in a higher-risk environment than we were on Friday. Markets will react, but probably still modestly in equity markets. We’re for sure going to see oil going higher. Investors will also have to think about the impact of higher oil on inflation, and if that’s the case, Europe is going to be hit harder than the US. Uncertainty has been very high this year and now this is another event that’s added to it. So we’ll see some volatility but right now, given the information we have, I don’t see that it’s going to be long lived. So far, we haven’t seen bombings of energy facilities and the Strait of Hormuz hasn’t closed. Markets will appreciate that. While there’s going to be risk-off sentiment for sure, hopefully it’s not going to be long lived or too deep.
Ataru Okumura, senior interest-rate strategist at SMBC Nikko Securities Inc.
If a cycle of retaliation continues, increased US fiscal spending could lead to a rise in Treasury yields and US stock prices. During the conflict in Iraq in 2003 and the Gulf War in 1991, US stocks rallied as the stimulus effect of massive war spending became apparent or was expected to become apparent.
Charu Chanana, chief investment strategist at Saxo Markets in Singapore
This marks a turning point for markets. While oil and gold are likely to surge on geopolitical risk, the bigger question is whether US assets can still command a safe-haven premium. Rising fiscal risks, institutional strain, and policy unpredictability could accelerate the fading of US exceptionalism. Trump’s decision to bypass Congress adds to institutional concerns, likely putting upward pressure on US yields and questioning the credibility premium once attached to US assets. Beyond the immediate market reaction — higher oil, gold, and volatility — investors will be watching for a potential shutdown of the Strait of Hormuz or retaliation against US naval assets. These risks could drive oil sharply higher, add inflation uncertainty, and test the US dollar’s safe-haven appeal amid rising concerns over fiscal dominance and institutional erosion.
Gary Dugan, chief executive officer of The Global CIO Office
We expect equities to react in a measured way, be it with some downside risk. Markets are not technically overextended with many trading within 3-5% of their 200-day moving averages. Unless we see a significant spike in oil prices we would expect equity markets to hang in around current levels.
Nirgunan Tiruchelvam, an analyst at Aletheia Capital in Singapore
There are 3 scenarios. A dramatic escalation in Mideast tension: This could see the Strait of Hormuz being blocked and a cycle of revenge. The second is an end to the hostilities in a similar manner that India-Pakistan ended last month. The third is the continuation of the low-intensity bombing by both sides. We expect risk assets to be under pressure under scenarios 1 and 3. Oil and other commodities will also rally under these scenarios.
Jason Schenker, president of Prestige Economics
The level of fear in global financial markets will hinge on the next wave of actions in and the potential duration of this conflict, and it may take days or weeks before the fog of war clears enough for traders to take outlier positions with significant conviction. As for bonds, the impacts of this conflict could be mixed. While the Fed would have less leeway to cut interest rates due to higher crude oil prices, money leaving equity markets may flood into bonds and Treasuries as safe havens, sending bond prices higher and bond yields lower.
Viraj Patel, strategist at Vanda Research
This weekend’s US strikes are another reason for hedge funds and CTAs to rush towards the exit on their bearish USD bets. We believe one of the biggest pain trades this summer could be a grind higher in the USD as the reasons for being short USD fall by the wayside. There’s a perfect storm brewing for non-US equities — especially crowded cyclical European and Asian markets. Rising geopolitical risks are another headwind for global growth on top of the ongoing slowdown in cross-border trade driven by Trump tariff policies (which certain equity markets seem to be ignoring). We believe Europe and EM could underperform here as recent ‘hot money’ inflows unwind as global investors turn more cautious.
–With assistance from Abhishek Vishnoi, Masaki Kondo, Jiyeun Lee, Jaehyun Eom, Michael G. Wilson, Sydney Maki, Michael Msika and Srinivasan Sivabalan.
(Updates with latest market prices.)
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Trump Claims Success After Bombing Key Iran Nuclear Sites
Leading Republicans in Congress commended the military operation, calling it a necessary check on Iran’s ambitions of developing a nuclear weapon. But top Democrats, who were given only perfunctory notice of the strikes before they occurred, harshly criticized the move. One high-profile Democrat, Representative Alexandria Ocasio-Cortez, called the operation grounds for impeachment. The Constitution gives Congress the authority to declare war, but in modern times both parties have carried out unilaterally attacks on other countries without congressional authorization. It has been decades since Congress has voted on whether to authorize military force, and efforts to claw back the legislative branch’s war powers have repeatedly stalled. The White House says the strikes were conducted in self-defense of the U.S. and its allies in the Mideast, and that the Iranian regime is responsible for attacks on Israel and the Lebanese Hezbollah terrorist group. The U.N. Security Council has approved a resolution condemning the strikes, but the White House has not said whether it will go ahead.
Top Republicans in Congress swiftly rallied behind President Trump on Saturday after he ordered strikes on three Iranian nuclear sites, even as senior Democrats and some G.O.P. lawmakers condemned it as an unconstitutional move that could drag the United States into a broader war in the Middle East.
In separate statements, the leading Republicans in Congress, Speaker Mike Johnson and Senator John Thune of South Dakota, the majority leader, commended the military operation, calling it a necessary check on Iran’s ambitions of developing a nuclear weapon. Both men had been briefed on the military action before the strike was carried out, according to three people familiar with the matter who were not authorized to discuss it publicly.
Mr. Johnson and Mr. Thune both argued that the airstrikes were necessary after Iran had rejected diplomatic overtures to curb its nuclear program.
“The regime in Iran, which has committed itself to bringing ‘death to America’ and wiping Israel off the map, has rejected all diplomatic pathways to peace,” Mr. Thune said.
Image Senator John Thune, Republican of South Dakota, said that Iran rejected pathways to peace. Credit… Tierney L. Cross/The New York Times
Mr. Johnson argued that the military action was consistent with Mr. Trump’s muscular foreign policy.
“President Trump has been consistent and clear that a nuclear-armed Iran will not be tolerated,” he said. “That posture has now been enforced with strength, precision and clarity.”
But top Democrats, who were given only perfunctory notice of the strikes before they occurred, harshly criticized the move.
“President Trump misled the country about his intentions, failed to seek congressional authorization for the use of military force and risks American entanglement in a potentially disastrous war in the Middle East,” Representative Hakeem Jeffries, Democrat of New York and the minority leader, said in a statement. He said the president “shoulders complete and total responsibility for any adverse consequences that flow from his unilateral military action.”
Senator Chuck Schumer, Democrat of New York and the minority leader, demanded “clear answers” from Mr. Trump on the operation and called for an immediate vote on legislation that would require explicit authorization from Congress for the use of military force.
“The danger of wider, longer, and more devastating war has now dramatically increased,” he said.
Representative Jim Himes, the ranking Democrat on the Intelligence Committee, condemned the operation as unconstitutional and warned that it could drag the United States into a larger conflict.
“Donald Trump’s decision to launch direct military action against Iran without congressional approval is a clear violation of the Constitution, which grants the power to declare war explicitly to Congress,” he said in a statement. “It is impossible to know at this stage whether this operation accomplished its objectives. We also don’t know if this will lead to further escalation in the region and attacks against our forces, events that could easily pull us even deeper into a war in the Middle East.”
While Senator Tom Cotton, Republican of Arkansas and the chairman of the Intelligence Committee, called Mr. Trump’s move “the right call,” the top Democrat on the panel, Senator Mark Warner of Virginia, said he had taken steps that could drag the United States into a war “without consulting Congress, without a clear strategy, without regard to the consistent conclusions of the intelligence community, and without explaining to the American people what’s at stake.”
Leading national security Democrats on Capitol Hill were not informed of the strikes until after Mr. Trump had posted about them on social media, according to three people familiar with the matter who would discuss it only on the condition of anonymity.
And one high-profile Democrat, Representative Alexandria Ocasio-Cortez, called the operation grounds for impeachment.
“He has impulsively risked launching a war that may ensnare us for generations. It is absolutely and clearly grounds for impeachment,” Ms. Ocasio-Cortez of New York said in a post on social media.
Democrats widely condemned the surprise attack as unconstitutional. But Ms. Ocasio-Cortez was the first on Saturday to say it was grounds for Trump’s removal, breaking with party leaders who have avoided talk of impeachment since the president returned to the White House, after two failed attempts to remove him during his first term. The Constitution gives Congress the authority to declare war, but in modern times, presidents of both parties have unilaterally carried out attacks on other countries without congressional authorization. It has been decades since Congress voted on whether to authorize military force, and efforts to claw back the legislative branch’s war powers have repeatedly stalled.
Most of the praise immediately following the operation in Iran came from Republicans, many of whom argued that the bombings would not lead to a ground deployment of American forces in the region.
“To those concerned about U.S. involvement — this isn’t a ‘forever war’ in fact, it’s ending one,” Senator Markwayne Mullin, Republican of Oklahoma, said on social media.
Senator Roger Wicker, the Republican chairman of the Armed Services Committee, called Mr. Trump’s decision to strike in Iran “deliberate” and “correct.”
“We now have very serious choices ahead to provide security for our citizens and our allies and stability for the Middle East,” Mr. Wicker said in a statement.
Senator John Fetterman of Pennsylvania, whose unqualified support for Israel has put him at odds with other members of his party, was one of the few Democrats to offer an immediate statement of support. He wrote on social media that the military action “was the correct move.”
“Iran is the world’s leading sponsor of terrorism and cannot have nuclear capabilities,” Mr. Fetterman added. “I’m grateful for and salute the finest military in the world.”
Other lawmakers, many of them Democrats who had already expressed concerns that the Trump administration was considering sidestepping Congress’s constitutional power to declare war, immediately criticized the strikes on the nuclear sites.
Image Representative Thomas Massie, center, said the strikes were not constitutional. Credit… Eric Lee/The New York Times
Mr. Trump, “did not come to Congress to explain his reasons for bombing a sovereign nation and to seek authorization for these strikes,” Representative Diana DeGette, Democrat of Colorado, said in a statement. “These reckless actions are going to put the lives of American service members and American citizens at risk.”
Representative Thomas Massie, Republican of Kentucky, who earlier this week introduced a bipartisan resolution that would require congressional approval before U.S. troops could engage in offensive attacks against Iran, wrote on social media that the attack was “not Constitutional.”
Carl Hulse and Megan Mineiro contributed reporting.
Oil prices hit 5-month high, Asian markets plunge as Israel-Iran conflict spirals with US entry
Oil prices, up over two per cent, hit a five-month high and Asian shares slipped early Monday. This comes as investors across the globe factor in the ongoing conflict after the US on Sunday struck three of Iran’s key nuclear sites. All eyes are now on Tehran’s potential retaliation. The Strait of Hormuz accounts for around a quarter of global oil trade and 20% of liquefied natural gas supplies. Countries around the Persian Gulf like Iran, Saudi Arabia, and UAE, which happen to be major oil producers, depend upon the Strait. With no sea route alternative, the blocking of the Strait would have ramifications for oil and LNG trade worldwide, leading to a sharp rise in prices. This fluctuation could then have a potential trickle-down effect on the prices of many other goods and commodities.
This comes as investors across the globe factor in the ongoing conflict after the US on Sunday struck three of Iran’s key nuclear sites. All eyes are now on Tehran’s potential retaliation.
Early moves were contained with no sign of panic selling across markets yet, news agency Reuters reported.
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Oil prices and Strait of Hormuz link
Oil prices were up around 2.8%, but off their initial peaks.
In the range of options Iran has, its Parliament has approved the closing of the Strait of Hormuz. The final decision will be taken by the Supreme National Security Council, Iran’s Press TV reported on Sunday.
This Strait, in the territorial waters of Iran and Oman, accounts for around a quarter of global oil trade and 20% of liquefied natural gas supplies. Countries around the Persian Gulf like Iran, Saudi Arabia, and UAE, which happen to be major oil producers, depend upon the Strait of Hormuz to access the open seas.
With no sea route alternative, the blocking of the Strait would have ramifications for oil and LNG trade worldwide, leading to a sharp rise in prices. This fluctuation could then have a potential trickle-down effect on the prices of many other goods and commodities.
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Europe and Japan are heavily reliant on imported oil and LNG, while the US is a net exporter. As the world’s third-largest consumer of crude oil with a high import dependency level of over 85 per cent, India is also extremely sensitive to oil prices.
Global markets
In the share market, S&P 500 futures was off a moderate 0.5 per cent and Nasdaq futures down 0.6 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5, and Japan’s Nikkei eased 0.9 per cent.
EUROSTOXX 50 futures lost 0.7 per cent, while FTSE futures fell 0.5 per cent and DAX futures slipped 0.7 per cent.
Meanwhile, US crude rose 2.8 per cent to $75.98. In currency markets, the US dollar was up 0.25 per cent against the Japanese yen at 146.415. This was after touching a one-month high earlier in the session.
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The euro was 0.33% lower at $1.1484, while the Australian dollar, often seen as risk proxy, weakened 0.2% to $0.6437, hovering near its lowest level in over three weeks.
In commodity markets, gold edged down 0.1 per cent to $3,363 an ounce.
What analysts say
During tensions in the West Asia region in the past, oil prices have shot up by as much as 76 per cent and rose over 30 per cent on an average over time, according to JPMorgan analysts.
“Selective disruptions that scare off oil tankers make more sense than closing the Strait of Hormuz given Iran’s oil exports would be shut down too,” Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, told Reuters.
Iran moves to block Strait of Hormuz: What this will mean for India, Tehran, world, in 4 points
Iran’s Parliament has approved the closing of the Strait of Hormuz, though the final decision will be taken by the Supreme National Security Council. The Strait is in the territorial waters of Iran and Oman, and accounts for a big bulk of the world’s oil trade. It is just 33 km at its narrowest point, while the width of the shipping lane in the to and fro direction is only 3 km. This makes it easy to block the Strait, or attack the ships passing through. If the passage of ships through the strait were to be disrupted, it would have ramifications for oil and LNG trade worldwide, and prices would shoot up. Any fluctuation in oil prices has a trickle-down effect on the prices of many other goods and commodities. In the 1980s, both Iraq and Iran-Iraq war, both nations attacked ships passing the straits, but did not stop traffic. Iran has never blocked the Strait in any conflict or conflict or war, and disrupting it will hurt itself and its own friends.
After the US struck three Iranian military sites, all eyes are now on Iran’s potential retaliation. In the range of options Iran has, possibly the most discussed is the threat to block the Strait of Hormuz. So far, most experts had agreed that Iran would not go that far. America’s actions on Sunday seemed to have changed that.
Iran’s foreign minister Seyed Abbas Aragchi, when asked by reporters about Hormuz, said simply that “a variety of options are available with Iran”.
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US Secretary of State Marco Rubio called on China to encourage Iran to not shut down the Strait. Rubio said on Fox News, “I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil. If they do that, it will be another terrible mistake. It’s an economic suicide for them if they do it.”
What makes blocking the Strait of Hormuz such a potent threat? We break down the history, geography and economics, in four points.
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What is the Strait of Hormuz?
A strait is a narrow water body connecting two larger bodies of water. The two water bodies that the Strait of Hormuz connects are the Persian Gulf and the Gulf of Oman, which further flows out into the Arabian Sea. Thus, countries around the Persian Gulf like Iran, Saudi Arabia, and UAE, which happen to be major oil producers, depend upon the Strait of Hormuz to access the open seas. The Strait is in the territorial waters of Iran and Oman, and accounts for a big bulk of the world’s oil trade.
The Strait of Hormuz connects the Persian Gulf and the Gulf of Oman. (Photo: Wikimedia Commons) The Strait of Hormuz connects the Persian Gulf and the Gulf of Oman. (Photo: Wikimedia Commons)
The Strait is not very wide. It is just 33 km at its narrowest point, while the width of the shipping lane in the to and fro direction is only 3 km. This makes it easy to block the Strait, or attack the ships passing through.
Why is the Strait of Hormuz so important?
Oil. According to the US Energy Information Administration (EIA), “Flows through the Strait of Hormuz in 2024 and the first quarter of 2025 made up more than one-quarter of total global seaborne oil trade and about one-fifth of global oil and petroleum product consumption. In addition, around one-fifth of global liquefied natural gas trade also transited the Strait of Hormuz in 2024, primarily from Qatar.”
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Because of its geographic location, there is no sea route alternative to the Strait of Hormuz. So if the passage of ships through the strait were to be disrupted, it would have ramifications for oil and LNG trade worldwide, and prices would shoot up. Any fluctuation in oil prices has a trickle-down effect on the prices of many other goods and commodities.
The alternatives to the Strait of Hormuz involve transporting oil overland to ports on the Red Sea or on the Gulf of Oman. The EIA states that Saudi Arabia’s Aramco “operates the 5 million barrels per day East-West crude oil pipeline, which runs from the Abqaiq oil processing centre near the Persian Gulf to the Yanbu port on the Red Sea”, while the UAE operates a “1.8 million-b/d pipeline linking onshore oil fields to the Fujairah export terminal in the Gulf of Oman.” For comparison, the flow through the Strait of Hormuz in 2024 was 20 million barrels per day.
Also, if a danger is perceived in the Strait of Hormuz region, insurances and security measures will go up, making shipping more expensive for all parties involved.
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How likely is Iran to block the Strait of Hormuz?
Blocking or disrupting the Strait of Hormuz can mean laying mines in the sea, attacking passing ships with missiles and bombs, detaining ships, or carrying out cyberattacks on the vessels.
Iran has never blocked the Strait, amid any war or conflict. In the 1980s, during the Iran-Iraq war, both nations attacked ships passing through the strait, but did not stop traffic.
This is because Iran depends on the strait for its own trade too, and disrupting it will hurt both itself and its friends. Iran’s neighbours, including the powerful Saudi Arabia, are slowly improving ties with it, and Tehran would not want to alienate them.
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Also, because of Western sanctions, Iran has few customers for its oil, which China thus buys in bulk at heavy discounts. A disruption in the strait will disrupt Iran ally China’s energy needs.
A major factor staying Iran’s hand so far had been that disturbing global trade would be one sure way to get the US directly involved militarily. But since the US has now already involved itself militarily, this deterrence is to a degree spent.
The US has its 5th Fleet stationed in Bahrain, and can respond quickly to Iran’s activities in the region. However, by the time ship movement is restored to normal, much chaos would already have been caused.
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How will India be affected if Strait of Hormuz is blocked?
The EIA estimates “84% of the crude oil and condensate and 83% of the liquefied natural gas that moved through the Strait of Hormuz went to Asian markets in 2024. China, India, Japan, and South Korea were the top destinations for crude oil moving through the Strait of Hormuz to Asia, accounting for a combined 69% of all Hormuz crude oil and condensate flows in 2024.”
So, India will be affected. India also buys oil from Russia, the US, Africa, and Latin America, so it is not that it won’t be able to get enough oil and gas. The problem will be about the price fluctuation.
Also, because China buys much of its oil from Iran, a long disruption here could force Beijing to turn to other sellers, further complicating the price question.