What is the Strait of Hormuz and what could happen to oil prices if Iran shuts it down?

It's called the world's to the highest degree vital oil scrag point — and Iran holds the power.

Washington's strikes on Iran stoked fears that Iran could retaliate by closing the Strait of Hormuz, a waterway between Iran and Oman through which around 20 per cent of the oil and gas consumed globally flows. 

Oil prices tumbled Monday after Iran's initial retaliation didn't appear to involve the strait, but analysts have warned that closing the strategic maritime entryway to the Persian Gulf could disrupt the flow of oil and devastate the global economy, at least temporarily.

"It would be extremely dangerous," Kaja Kallas, the EU high representative for foreign affairs and security policy, told reporters Monday.

If Tehran decides to disrupt or shut the strait, it would be "perilous," said Burcu Ozcelik, a senior research fellow in Middle East security at the Royal United Services Institute in London, England.

"[It] could trigger global economic shock waves and runs counter to Iran's own interests," Ozcelik said in an online statement.

How Iran could unleash chaos in the global oil economy

The Strait of Hormuz runs between Oman and Iran.

The strait connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. It's only 33 kilometres wide at its narrowest point, but deep enough and wide enough to handle the world's largest crude oil tankers. 

The shipping lane is just three kilometres wide in either direction.

About one-fifth of the world's total oil consumption passes through the strait, according to the U.S. Energy Information Administration (EIA). Most of that oil goes to Asia. In 2024, China, India, Japan, and South Korea were the top destinations for crude oil moving through the strait to Asia, notes the EIA.

"Large volumes of oil flow through the strait, and very few alternative options exist to move oil out of the strait if it is closed," the EIA noted in an analysis last week.

Oil that passes through the strait comes from Saudi Arabia, the United Arab Emirates, Iraq, Iran, Kuwait and Bahrain, while major supplies of liquefied natural gas come from Qatar. 

Last year, 20.2 million barrels of crude, condensate and fuels flowed through the strait daily, according to the EIA.

The EIA said that while most choke points can be circumvented by using other routes, which add significantly to transit times, some, like the Strait of Hormuz, have no practical alternatives.

"Most volumes that transit the strait have no alternative means of exiting the region," the EIA wrote.

As the EIA explains, the inability of oil to transit a major choke point, even temporarily, "can create substantial supply delays and raise shipping costs, potentially increasing world energy prices."

Markets will be on edge until there is greater certainty as to how Iran may respond, said Colby Connelly, a senior fellow with the Washington, D.C.-based think-tank the Middle East Institute, in an online statement.

On Sunday, Goldman Sachs analysts forecasted Brent crude oil prices could hit $110 US a barrel if the Strait of Hormuz is blocked. Other analysts have said prices could get as high as $120-$130 per barrel (at least temporarily).

"Given the strait's importance in global oil trade, the impact on oil would be very massive," Homayoun Falakshahi, senior oil analyst at global trade data company Kpler, said in an online video statement. "For sure we'll be seeing triple digits."

However, closing the strait would very much be a last resort for Iran, Falakshahi added.

Iran's parliament on Sunday approved a measure to close the strait, Iran's Press TV reported, but any such move would require approval from the Supreme National Security Council.

Iran has threatened to close the strait in the past but has never done so. To do so would cut off its own oil exports and harm its relations with trading partner China and its oil-exporting Arab neighbours.

Suzanne Maloney, vice-president and director of foreign policy at the Brookings Institute, called the vote Sunday by Iran's parliament "purely symbolic."

"Such a step would further cripple its own battered economy and jeopardize its fragile but valuable rapprochement with Saudi Arabia and the other Arab states along the Persian Gulf," Maloney said on the Brookings website.

U.S. Secretary of State Marco Rubio on Sunday called on China to encourage Iran to not shut down the Strait of Hormuz, citing China's reliance on Iran's oil.

"It's economic suicide for them if they do it," Rubio said.

Iran boasts a fleet of fast-attack boats and thousands of naval mines as well as missiles that it could use to make the strait impassable, at least for a time, according to The Associated Press.

Iran's main naval base at Bandar Abbas is on the north coast of the strait. It could also fire missiles from its long Persian Gulf shore, as its allies, Yemen's Houthi rebels, have done in the Red Sea.

Earlier on Monday, shiptracking data showed several tankers turning away from the strait, although some turned back again, according to Reuters.

Connelly, with the Middle East Institute, noted that while the U.S.'s strike adds more volatility to a situation that had already threatened oil and gas supplies, the strait "represents only one potential choke point for a major energy disruption."

"The Strait of Hormuz will, understandably, be under a microscope," Connelly said.

"But an increasingly volatile situation could yield unexpected disruptions around critical export infrastructure in the region, whether these would be caused intentionally or otherwise."

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