With Iran’s parliament approving the closure of the Strait of Hormuz, the price of oil might rise above $150 per barrel globally.
In a major escalation of Middle East tensions, Iran’s parliament has approved the closure of the strategically important Strait of Hormuz, a vital passageway for world oil supplies.
If this decision is implemented, the price of oil might rise from less than $80 to $150 per barrel globally.
The move follows Tehran’s pledges of revenge following a US-led airstrike that struck Iranian nuclear facilities.
The Hormuz Strait
About 20% of the world’s oil and 20% of its LNG traffic flow through the Strait of Hormuz, a small passageway that connects the Persian Gulf with the Arabian Sea.For the shipment of oil from major producers like Saudi Arabia, Iraq, and Iran, the canal is essential.
International energy markets would be significantly impacted if shipping across the strait were to be disrupted.
Possible Repercussions of Closure
Analysts predict that if the Strait of Hormuz is completely closed, crude oil prices will rise to more than $120 per barrel, possibly as high as $150.
Significant effects on global inflation, economic expansion, and energy security would result from this.
According to Nigel Green, CEO of deVere Group, “investors are bracing for sharp volatility as markets reopen on Monday, with crude oil prices expected to surge and inflation forecasts now under intense scrutiny.
Effects on the World Economy
In addition to having an impact on oil prices, the closure of the Strait of Hormuz would cause supply chain disruptions worldwide, raising shipping costs and causing delays.
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India would be especially at risk because of its heavy reliance on oil imports, which might have an impact on the nation’s economy and currency.
India, China, Japan, and South Korea were the leading destinations for 84% of crude oil and condensate shipments that crossed the Strait of Hormuz in 2024, according to the US Energy Information Administration (EIA).
Things you should be aware of
Iran has threatened to close the Strait of Hormuz before, but it has never really done so.
- Analysts believe that a closure would be a last resort, given the potential consequences for Iran’s own economy and global trade.
“There is no net benefit for Iran in closing the Strait. It would hurt its own exports to China, its biggest customer,” notes Anas Alhajji, managing partner at Energy Outlook Advisors.
However, with tensions escalating, the possibility of a closure cannot be entirely ruled out.
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