Editor’s Note: The Strait of Hormuz is not an ordinary shipping lane—it is one of the most critical chokepoints in the global energy system. It carries approximately 20% of the world’s oil supply and about 20% of global liquefied natural gas shipments daily. A prolonged disruption would extend far beyond oil price volatility, impacting shipping, insurance, industrial production, food prices, and even global economic growth.
The key takeaway here is that the strait does not need to be completely "closed"; a rise in risk perception, withdrawal of insurance, and cessation of shipping by vessel owners are sufficient to cause a practical supply disruption. While military forces may escort a limited number of vessels, they cannot immediately restore market confidence, insurance coverage, or the chain of commercial decision-making.
If the conflict escalates further and affects energy infrastructure in the Gulf region, the world could face an energy shock more severe than the oil crises of the 1970s. The real question is not just whether the strait can be reopened, but whether the global energy market can still believe it is sufficiently secure.
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The current administration has tried to convince people that the Strait of Hormuz can be reopened through a "simple military operation," or that it will "resume normal passage" at some unspecified future time. However, to date, the Strait of Hormuz remains largely closed.
If this situation continues, especially if the war escalates further and Iran destroys more energy infrastructure in the region, while the United States and Israel launch similar strikes against targets within Iran, we could be heading toward an energy crisis unlike any seen since the 1970s—potentially even more severe.
The key point is that the Strait of Hormuz does not need to be literally "completely closed" for the global supply chain to grind to a halt. Modern energy systems are not just about pipelines and tankers—they are a chain of business decisions: shipping arrangements, insurance coverage, port access, and inventory capacity.
When enough of the components fail, "basic shutdown" is effectively no different from a complete shutdown.
Scale of impact
The Strait of Hormuz transports approximately 20 million barrels of oil per day, accounting for about 20% of global oil supply, as global daily oil demand stands at around 100 million barrels. It also handles about 20% of the world’s liquefied natural gas shipments. Currently, very few vessels are able to pass through safely.
It is indeed the most critical maritime chokepoint in the global energy sector, but its impact extends far beyond energy. Large volumes of petrochemicals, aluminum, and fertilizers also transit through this strait, directly affecting industrial output, food production, and food prices. Even when considering only oil and natural gas, there is no more vital chokepoint than the Strait of Hormuz.
Since the 1970s, the Gulf region has been at the heart of the global energy market. Iraq, Saudi Arabia, the UAE, and Iran are major oil-producing nations. Most of this oil enters the global market via tankers passing through this narrow corridor. The Strait of Hormuz is a narrow waterway that winds along Iran’s coastline.
Because of these geographic conditions, disrupting shipping does not require significant cost. Just a few drones or a small boat loaded with explosives ramming a tanker is enough to create risk. You don’t need to launch a large-scale, long-term military operation. Before this conflict, about 100 tankers passed through the Strait of Hormuz daily. Just one or two credible attacks could cause insurers to withdraw coverage and shipping operators to deem the risk unacceptable.
Of course, there are also alternative pathways. Saudi Arabia can transport a limited amount of oil via pipelines. Ironically, Iranian oil is still flowing. Strategic petroleum reserves have already been tapped. Sanctions on Russia and Iran have also been eased, though whether this choice is wise remains highly controversial.
Even accounting for all these factors, analysts estimate that approximately 10 million barrels of oil per day are being disrupted, possibly even more—equivalent to more than 10% of global supply.
In comparison, the 1973 Arab oil embargo caused long gas lines, rationing, and severe inflation, affecting approximately 6% to 7% of global supply. Whether measured by absolute scale or as a share of global demand, the supply disruption caused by the closure of the Strait of Hormuz would far exceed any shock the modern global economy has ever experienced.
Why risk awareness is a key driver
Or, why can't the navy simply order the strait to be "opened"?
Creating risk perception doesn't require much action, and in global shipping, risk perception nearly determines everything.
You don’t need to completely block the Strait of Hormuz or stop every ship from passing. You only need to strike a tanker every few days or every one to two weeks—or even just create a credible threat—to make insurers and shipping companies deem the risk unacceptable.
There are simply too many vessels crossing this strait to protect them all. Given modern drone technology and small, high-speed boats, creating the impression that "any ship could be attacked at any moment" is not particularly difficult. Once this impression takes hold, the entire route will begin to seem unsafe.
You might be able to protect a few warships, or even escort a small number of merchant vessels under heavy escort. But protecting dozens of oil tankers and ensuring the daily flow of global energy transportation is an entirely different challenge.
Once the insurance coverage is withdrawn, the market effectively shuts down on its own.
Tankers carry extremely valuable cargo. Operators will not send them into high-risk areas without insurance, and insurers will not cover open-ended geopolitical escalation. At that stage, the decision is no longer a political or military one—it becomes a commercial one.
Thus, even if naval escorts allow some ships to pass, they cannot resolve the actual blockade. The Strait of Hormuz is not closed due to a dramatic blockade, but because insurers have withdrawn coverage and operators refuse to take on the risk, causing global commercial activity to grind to a halt.
In other words, this is not just a military issue—it’s an insurance issue, a risk management issue, and ultimately a business issue. And the response time of these systems is far faster than fleet deployment.
Why it might initially appear unusually calm
One reason the current situation appears strangely calm is that disruptions initially manifest as "absences" rather than dramatic events. Tankers don’t burn on camera—they simply stop moving. Production is reduced in advance, and inventories buffer the initial shock.
It is important that a significant portion of the region’s energy infrastructure remains physically intact. If the strait can be quickly reopened and the infrastructure has not suffered severe damage, energy flows could return to normal within weeks or months. However, as risk perceptions solidify and damage continues to accumulate, this window is rapidly closing.
How the effects accumulate over time
The closure of the Strait of Hormuz is the most terrifying nightmare scenario for the global energy market. If you tell people that 20 million barrels of oil per day—most of the supply transported through the strait—would be disrupted, many would expect oil prices to rise to $150 or even $200 per barrel.
However, it’s worth noting that oil prices are currently only slightly above $100. Historically, this is high, but not extremely so.
Analysts believe there are several reasons.
One of them is that the market generally believes this crisis may end with leaders from all sides stepping back, declaring victory, and finding an exit. In other words, the market expects the political system will not tolerate a prolonged, draining crisis.
However, if the situation persists, energy prices may still be far from their peak.
The oil prices you see in the newspaper are essentially set daily by traders based on their expectations of future trends. But at some point, physical reality will ultimately take precedence.
We are already beginning to see early signs of this disconnect. For example, the prices of jet fuel and heating oil have risen significantly above what would typically be expected when benchmark crude oil prices are around $100 per barrel.
This indicates that physical constraints are beginning to become important.
Another reason the market may initially appear "calm" is due to time lags—actual supply disruptions in certain markets take time to become apparent.
If a tanker loads crude oil in Iraq or Saudi Arabia, it may take up to two weeks to reach its destination. We are still consuming oil that was loaded before the crisis began.
So currently, the market is drawing down inventories and relying on oil that is already in transit. However, over time, physical shortages will become more apparent and more severe.
At that point, the lag between market expectations and physical reality will be eliminated, and prices may experience rapid and significant fluctuations.
Demand Destruction and Economic Recession: Potential Impacts
As the physical reality of supply disruptions catches up to market expectations, prices will have to rise to levels sufficient to genuinely suppress demand. And that is not easy. It requires large-scale behavioral changes.
If the Strait of Hormuz remains closed for the next several weeks, a real-world reduction of approximately 10 million barrels per day in global oil supply would leave prices with no choice but to rise to a level sufficient to reduce global consumption by a comparable amount. It is difficult to pinpoint exactly which price level would achieve this, but it would certainly be significantly higher than today’s oil prices.
Demand destruction is not a theoretical concept. It means consumers and businesses are forced to find alternatives and stop purchasing gasoline or burning fuel.
Consumers will drive less. Travel will be postponed or canceled. Airlines will begin adjusting flight schedules, suspending low-profit routes that are no longer financially viable under high oil prices.
The same logic applies to the industrial sector. Factories reduce shifts or shut down entirely. Energy-intensive facilities suspend operations because fuel costs have made their output unprofitable.
In regions more vulnerable to high oil prices, we have already seen early versions of this response. Several Southeast Asian countries, including Thailand, Indonesia, and Malaysia, have announced emergency measures such as mandatory remote work days, school closures, and other policies explicitly designed to reduce fuel consumption.
So the question becomes: How high would oil prices need to rise for the global economy to consume approximately 10 million fewer barrels of oil per day?
The last time the world faced a shock of similar scale was the 1973 Arab oil embargo. At that time, there was more room for easily achievable adjustments, as well as more opportunities for rapid efficiency gains and alternatives. But over the past few decades, many of these adjustments have already been made.
Today, oil is primarily used in sectors with limited short-term alternatives. In the long term, viable alternatives certainly exist—such as electric vehicles, electrified industrial processes, and redesigned cities. But in the short term, system flexibility is extremely scarce. The only remaining tool is a very blunt one: compressing economic activity.
People turn to public transportation when possible. Businesses scale back operations. A portion of economic output disappears directly.
As economist James Hamilton has shown, nearly every major oil shock in the 20th century was followed by an economic recession. Whether the same outcome occurs here depends on how high oil prices ultimately rise. But if oil prices must increase to a level sufficient to eliminate about 10 million barrels of global daily demand, then yes, that is precisely the kind of shock capable of pushing the global economy into recession.
What else can be done, if there's any way possible?
No policy tool in the global toolbox is sufficient to offset daily oil supply losses of 10 to 15 million barrels.
If the Strait of Hormuz remains closed, it will be impossible to prevent a significant surge in oil prices. No combination of reserve releases, exemptions, or short-term remedies can offset a disruption of this magnitude.
Policymakers have deployed some of the most powerful tools available. The International Energy Agency announced the largest coordinated release of strategic petroleum reserves in history, totaling approximately 400 million barrels.
Interestingly, on the day the release of reserves was announced, oil prices rose rather than fell. This was not because the reserves were meaningless, but because the market understood the mismatch in scale—these oil reserves were still far too small relative to the scale of the supply disruption.
In such a crisis, what truly matters is not the total number of barrels of oil in reserves, but how many barrels can be delivered to the market each day. Under a scenario where 10 to 15 million barrels per day of supply are lost, strategic reserves can at most replace 2 to 3 million barrels per day—and only for a limited time.
In addition, familiar ideas begin to emerge, appearing in nearly every recent energy crisis—such as exempting the Jones Act to make it easier to transport fuel between U.S. ports, relaxing environmental or fuel standards, and making incremental adjustments to refinery regulations.
These measures might reduce pump prices by a few cents at the margin, but none of them are sufficient to stabilize prices in the face of such a large supply disruption.
Therefore, if the Strait of Hormuz remains closed, especially if the conflict escalates into sustained physical damage to regional energy infrastructure, the outcome is not ambiguous. You will no longer be facing a temporary shock or a mere market fluctuation.
You are facing a comprehensive energy crisis. And there are no policy shortcuts that can make it disappear.
Why the situation may not immediately return to normal
The key point is that energy markets do not merely react to whether a war starts or ends; they also respond to perceptions of risk and physical damage, both of which can persist for months, or even years, after fighting has ceased.
One possible outcome is that the perception of risk may never fully dissipate. Even if the United States declares its operations concluded, Iran and Israel will still have a voice. Shipping will only resume when insurers, operators, and governments simultaneously believe that passage is truly safe.
This means that even without further attacks, ongoing uncertainty could keep the Strait of Hormuz effectively closed. Tankers won’t return just because of a speech or a ceasefire statement. They will only come back when the risk premium disappears—and that requires confidence, not just declarations.
But the greater danger lies in physical damage.
If a major export hub or processing facility is attacked, retaliation against other critical energy infrastructure is likely to follow. At that point, the timeline would no longer be measured in weeks, but in years.
We have seen similar situations before. In 2019, Houthi militants attacked Saudi Arabia’s Abqaiq oil processing facility, temporarily disrupting 5.7 million barrels per day of production and causing oil prices to surge at an unprecedented rate. In that incident, the physical damage was limited, and Saudi Arabia restored production at an astonishing pace. However, the event revealed just how vulnerable the entire system is—and how much worse the consequences could have been.
If the attacks in the current conflict escalate further, it is easy to imagine millions of additional barrels per day going offline—supply that has not yet been lost.
The Strait of Hormuz itself has some alternative routing options, but these have limited capacity and are equally vulnerable. Before the crisis, Saudi Arabia exported approximately 7 million barrels of oil per day. Now, it can export around 4 to 5 million barrels per day via pipelines that bypass the Strait of Hormuz and connect to Red Sea ports, particularly Yanbu.
However, these routes are not immune to disruption. Over the past few years, the Houthi movement has demonstrated that shipping in the Red Sea can also be effectively targeted. Although we have not yet seen sustained attacks in the region during this conflict, the risk is clearly rising given the Houthi movement’s ties to Iran.
Qatar as well. Following an attack on one of its liquefied natural gas facilities, Qatari authorities stated that even repairing just 20% of the damage could take three to five years. It may ultimately come closer to two to three years. But in any case, the timeline is measured in years, not weeks or months.
This is the most crucial difference.
If the war ends cleanly and most infrastructure remains intact, energy flows could recover relatively quickly. However, if critical facilities across the region are damaged in escalating acts of retaliation, high prices and restricted supply will persist long after the gunfire stops.
In that scenario, believing that energy markets would quickly return to normal upon a ceasefire is both a comforting and a dangerous illusion. Unfortunately, this seems to be the illusion underlying the current strategy.