Tuesday, June 24, 2025

STRAIT OF HORMUZ - IN THE FACE OF A POSSIBLE GLOBAL ENERGY SHOCK

 Filenews 24 June 2025



There are several major energy hotspots around the world, but none are more important – and at the same time vulnerable – than the Strait of Hormuz. After the U.S. bombed Iran's nuclear facilities on Saturday, the Iranian parliament voted in favour of closing this critical cargo transit point. Such a move could shake up the global energy market.

Although the final decision still rests with Iran's Supreme National Security Council — and Iran has not implemented previous threats to close the Strait — the outcome of the vote signals Tehran's intention to weaponize one of the world's most economically important sea routes. If the Straits are closed, the consequences will be rapid, serious and global. 

On June 21, the United States launched coordinated airstrikes against Iranian nuclear facilities in Fordow, Natanz, and Isfahan. The strikes were the most serious escalation in U.S.-Iran relations in more than a decade. The U.S. used B-2 stealth bombers and Tomahawk missiles launched from submarines.

After the strike, Donald Trump said, "Now is the time for peace."

A few hours later, the Iranian parliament voted to close the Strait of Hormuz – a move that the U.S. would interpret as a major escalation.

U.S. Secretary of State Marco Rubio told Fox News: "If they do that, it will be another terrible mistake. It's financial suicide for them if they do it. And we have options to deal with it [...] Other states' economies will be hit worse than the U.S."

Why the Strait of Hormuz is important

At just 21 miles wide at its narrowest point, the Strait of Hormuz is home to 20 percent of the world's oil cargoes. In addition, it is a vital route for the transit of liquefied natural gas (LNG). Many oil-producing states rely on the Strait of Hormuz to channel their products to the market.

There are three major LNG producers in the world: each holds a share of around 20% in the global market. They are the USA, Qatar and Australia. Qatar annually transports about 77 million metric tonnes of LNG – most of this amount passes through the Straits. Qatar's customers include energy-hungry countries: Japan, South Korea, China, India, as well as parts of Europe. If Qatar is cut off from the market, these states will lose part of their energy supply almost overnight.

Consequences of the closure

If Iran closes the Strait of Hormuz, the impact on global energy markets will be immediate and far-reaching.

Energy prices will skyrocket in all sectors. Oil could exceed $90 a barrel and spot LNG prices – particularly in Asia and Europe – could return to levels we have not seen since 2022. For countries with a high dependence on natural gas imports, the impact will be: a new rise in inflation, worsening energy insecurity, and even the provision of fuel with a voucher in view of winter.

The shipping and insurance markets will be confused. The passage of tankers through the Persian Gulf will be stopped. Insurance companies may suspend the coverage of ships passing through the Straits or ask for exorbitant premiums due to "war risk". Some shipping companies will avoid the region altogether and choose longer routes, increasing costs not only for energy, but for goods and consumer goods in all sectors.

Strategic oil and gas reserves will be exploited as direct substitutes. Nations such as Japan, South Korea and India – which depend heavily on the Persian Gulf's energy flows – will be among the first to use their reserves. But these stocks are limited, and a permanent closure of the Straits will quickly curb their ability to offset supply chain disruptions.

Broader economic consequences will follow. As energy prices rise, so will the costs for transport, chemicals and heavy manufacturing. Inflation will accelerate again around the world, putting renewed pressure on central banks and undermining the recent price stabilization. Some emerging economies, which do not have the power to subsidize increased energy costs, will be hit harder, but developed economies will also find themselves under pressure.

Finally, a prolonged disruption in the supply chain will accelerate the ongoing global energy transition. Policymakers will move quickly to diversify energy sources – accelerating the deployment of liquefied natural gas terminals, expanding storage capacity and increasing imports from more stable suppliers such as the US. It will also strengthen the arguments for longer-term investments in nuclear energy and renewables, which offer some security against the geopolitical instability that continues to be a factor affecting fossil fuel markets.

A risky game

The closure of the Straits will also hurt Iran's economy, which relies heavily on exports by sea. But history shows that governments under pressure do not always act rationally – nationalism and survival are especially involved in their decisions.

Tehran may see the closure of the Straits as a way to rally its citizens, react to the West, or extract concessions in future negotiations. But this is a high-risk move with no easy exit.

The U.S. has made it clear that such an act will be viewed as hostile — and not just by Washington. Many of the world's largest economies have a legitimate interest in keeping the Straits open, and a multinational response is more than likely.

The planet is closely monitoring developments. Energy companies are reviewing contingency plans and governments are dusting off emergency protocols. Even if there is no immediate military escalation, the growing geopolitical risk has already been priced in oil and LNG futures.

It is worth noting that the Strait of Hormuz has never been completely closed in modern history – not even in times of regional conflict. The worst incident occurred during the Iran-Iraq war in the 1980s, especially during the "War of the Tankers", when both countries targeted merchant shipping and mined the entire Persian Gulf. However, the Straits remained open.

Iran has made similar threats in the past — notably in 2011/2012 and 2019 — in response to sanctions and military pressure. In any case, the threat alone was enough to shake global energy markets, even without actually closing the Straits.

The developments may be similar. But markets are rightly on alert because the Strait of Hormuz is not just a sea route – it is a pressure point for the global economy. And right now, the pressure is increasing.

Forbes/Robert Rapier