By Matt Randolph
The Strait of Hormuz is one of the most important sea routes for the global economy, as about 20% of the world's oil and 20% of LNG are traded through it every day.
Stopping the transit of oil through the Strait has been Iran's most effective weapon against the U.S. since the war began in late February. The strategy is to affect the global economy in a way that affects not only the US but also the rest of the world. In recent days, Donald Trump has said he is considering leaving Iran with the Strait of Hormuz closed, leaving the task of restoring normality in oil transportation to allies. Such a move could exacerbate an already serious problem, as oil prices have risen by 65% since the start of the war.
The almost complete closure of the Strait brings an increase in fuel prices worldwide, from the gasoline we put in our cars to the oil used to transport our products, the fuel that drives aircraft and the fuel of ships that transport cargo around the world. This fact is likely to cause an increase in the prices of most of the products we buy every day, as well as trigger an increase in inflation worldwide. The reopening of the Strait of Hormuz should be a top priority at the moment, in order to avoid a significant slowdown in the global economy. That this is the first time we have experienced a disruption of this magnitude in global oil supplies, and all the predicted consequences of this situation are just that: predictions.
There is one country that still imports oil through the Strait and that is China. Nearly 50% of China's oil imports pass through Hormuz. More importantly, over 90% of Iran's crude oil exports go to China, which means that the Islamic Republic is more dependent on China than any other country in the world. Iran's economy is essentially dependent on China to survive, and that is why Beijing has the greatest power and influence to reopen the Strait. China may be satisfied with the cargoes it receives from the region for the time being, but eventually the impact this disruption will have on the global economy will begin to have significant negative effects on its economy as well. As trade begins to slow and the cost of marine fuel continues to rise, China's economy will suffer even more.
Instead of a naval escort or military action, China could simply demand the reopening of the Strait. This may be the reason why the US Allies are in no hurry to intervene and open it: why would they take this risk, when China might intervene and open it in a diplomatic way? One thing is certain: as world leaders weigh these risks and potential repercussions, continued missteps in the region can easily trigger a global recession, and this is something no one wants.
