The Israeli strikes on Iranian nuclear and military facilities on Friday 13th June, followed by Iran’s retaliatory actions, have heightened fears of a broader regional conflict and potential disruption to maritime traffic through the Strait of Hormuz (SoH). This narrow sea passage, situated between Oman and Iran, serves as a vital conduit connecting crude oil exporters in the Middle East Gulf to global markets.

Although Iran has stated it has no intention of closing the SoH, any such move would have severe implications for global oil markets. The strait handles over 35% of the world’s seaborne crude oil trade, and viable alternatives to bypass it are extremely limited. All key Middle Eastern OPEC producers—Saudi Arabia, Iran, the United Arab Emirates, Kuwait, and Iraq—rely heavily on the strait for crude exports.

While Saudi Arabia, the UAE, and Iraq have functional pipelines that offer an overland alternative, their combined spare capacity is estimated at just 4 million barrels per day (mbpd). This means that in the event of a complete blockade, over 11 mbpd of crude oil supply could be disrupted, triggering potentially severe market consequences.

Although crude exports through the Strait of Hormuz have declined in recent years due to OPEC+ production cuts amid rising non-OPEC supply, the strait still accounted for approximately 37% of global seaborne crude oil trade in 2024. The majority of this oil—about 86%—was destined for Asian markets, with China, India, and Japan being the largest importers.

Given the strategic importance of the Strait of Hormuz to global oil supply, a complete closure by Iran remains unlikely. However, any such disruption would significantly tighten global crude supply, sending oil prices soaring to record highs. Crude trade volumes would decline sharply, leading to a substantial drop in tanker utilization and, in turn, a steep fall in freight rates across the tanker market.

Conversely, an increase in targeted attacks on tankers transiting the strait could lead to a partial disruption of traffic. The heightened risk would drive up insurance premiums and operating costs. In such a scenario, any reduction in crude flows through the SoH would support freight rates, as buyers diversify their sourcing strategies. The resulting vessel repositioning and shifts in trade patterns would help sustain or even boost tonnage demand for both crude and product tankers.

Source: Drewry