Iran’s Threat to Close Strait of Hormuz: Impact on Global Oil Supply

Understanding the Strait of Hormuz

Iran has often talked about blocking the Strait of Hormuz. This narrow path is vital for the world’s oil supply. But Iran hasn’t closed it yet.

Why the Threat Exists

Experts think Iran uses this threat as a way to talk to others. The chance of it actually closing is low. The world’s oil markets are ready for any problems from the area.

Expert Opinions

Hitesh Jain, an expert at Yes Securities, shared his thoughts. He said, “Iran has threatened to close the Strait of Hormuz many times. But it has never done so. Closing it would hurt Iran’s own economy and plans.”

The Importance of the Strait

The Strait of Hormuz is very important for oil exports. It sits between Iran and the Arabian Peninsula. Countries like Saudi Arabia, Iran, Iraq, Kuwait, and the UAE use this route. It’s also key for sending liquefied natural gas (LNG) from Qatar.

• About 20% of the world’s oil goes through this path.
• A big part of the world’s LNG also uses this route.
• Over a third of India’s energy needs come through this way.

Market Strength

Jain pointed out that oil markets have plenty of supply. OPEC has an extra 4 million barrels per day. There was already more oil than needed before any conflict. US shale production adds to this strength.

Price Predictions

The rating group ICRA agrees but adds a warning. They think oil prices might average $70-80 per barrel this year. A long conflict could push prices up. This would increase oil imports and the current account deficit (CAD).

India’s Need for Energy

India depends a lot on imported energy. Over 85% of its oil and about half of its natural gas come from other countries. Imports from Iraq, Saudi Arabia, Kuwait, and the UAE make up 40–45% of India’s oil. About 60% of its LNG imports also go through the Strait of Hormuz.

World Energy Scene

The world energy scene has changed a lot since 2008. US shale has increased global supply and flexibility. Markets can now handle problems with only short price increases.

Factors Affecting Demand

China’s slow recovery after COVID and the world’s move to electric cars are slowing oil demand. Better fuel use and greener rules also play a part. With this background, Brent crude is unlikely to stay above $80 per barrel unless the Strait of Hormuz is closed or important Gulf buildings are targeted.

Looking Ahead

The International Energy Agency (IEA) and US Energy Information Administration (EIA) have lowered their 2025 global oil demand growth predictions. But risks in the area remain. Any problem with Iranian production or a bigger conflict could push energy prices up.

ICRA also said that with high oil prices, while the profit of upstream companies will stay good, the marketing profits of downstream companies will be hurt. This includes the growth of LPG under-recoveries.