Iran Closes the Straits of Hormuz Blocking Shipping and Increasing Oil Prices

What Happened?

As part of the ongoing war with Israel and the United States, Iran has announced the closure of the Strait of Hormuz and has threatened to open fire on any commercial ships that try to pass through the strait.

At least two such ships have already been attacked by the Iranian military, though neither was sunk. ‘If anyone tries to ​pass, the heroes of the Revolutionary Guards and the regular navy will set ​those ships ablaze,’ said Ebrahim Jabari, a senior adviser to the Guards commander-in-chief, according to Iranian state television.

According to Time, as of Wednesday, Brent crude oil prices had risen by around 7%, reaching as high as $83 per barrel. When markets closed on Friday, the day before the Iran war started, the barrel cost was just over $73.

Why it Matters

The closing of the Straits of Hormuz has had an immediate effect on the global supply of oil and gas, causing a price spike in both. The Strait of Hormuz is a narrow naval chokepoint, measuring only 31 miles at its widest part.

Iran is on its north bank opposite Oman and the United Arab Emirates. A substantial amount of oil exports from Kuwait, Iraq, Saudi Arabia, Qatar, and the UAE pass through the straits every day, as well as Iran’s own exports. Around 20% of global liquid natural gas exports also flow through the passage, mostly originating from Qatar.

In response to Iran’s closing of the Straits of Hormuz, the Trump Administration has said it may begin providing commercial ships with naval escorts, but as of Thursday, that had not begun.

American and Israeli military forces have destroyed several Iranian naval vessels, but the threat to commercial shipping has not been eliminated. Iran often uses small, fast-moving boats to attack commercial ships, and that is a capability Iran still has.

For commercial ships, even a U.S. naval escort cannot guarantee safe passage, so most of those ships have now stopped delivering their cargo. Iran has threatened closure of the straits many times in the past, but this is the first time they have actually made good on their promise.

Reopening the straits will be difficult without Iran’s cooperation, because the high volume of commercial traffic and such a narrow passageway makes targeting ships easy for Iranian forces. 

The longer the straits remain closed to commercial traffic, the more severe the impact will be on global oil and gas supplies, and in turn on their prices. Without ending the war, it will be difficult to keep commercial ships safe in the Straits of Hormuz as long as Iran is willing to attack them.

How it Affects You

The closure of the Straits of Hormuz has created global economic consequences for the wider regional war now engulfing the Middle East. Rising oil prices may result in higher costs for consumers, but they may also generate more international political pressure to bring the war to a faster end.