The Strait of Hormuz is the primary maritime waterway connecting the Persian Gulf to Gulf of Oman and by extension the Arabian Sea. This vital route has Iran to its North and Oman to its South and is 33 kilometres at its narrowest and 167 kilometres in length.
CHART: BUSINESSDAY SOURCE: BD RESEARCH, 2026
It plays an indispensable role in global energy supply because it is the premier oil chokehold with 20 million barrels of oil, condensates, other petroleum products as well as 20% of liquefied natural gas (LNG) passing through it daily and 35-45% of seaborne methanol exports.
CHART: BUSINESSDAY SOURCE: BD RESEARCH, 2026
Consequently, the closure of this vital artery has sent shockwaves across the global energy markets.
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What Caused the Closure
CHART: BUSINESSDAY SOURCE: BD RESEARCH, 2026
Apart from the attacks the Iranians have launched using missiles and drones; Iran’s Islamic Revolutionary Guard Corp (IRGC) has a history of mining the chokehold or just harassing ships in a bid to make it impossible to use the passage.
The Extent of the Damage
Traffic remains strangled in the strategic strait. Due to threats from Iran, the global energy markets have been roiled. The traffic of oil on this vital chokehold has reduced by 87% and almost 100% in some instances in the last few days.
Before the crisis in the maritime checkpoints, hundreds of ships could pass through it daily. The numbers are now single-digit and almost zero.
The globe’s entire supply chain might be upended as insurers either refuse to grant insurance policies for any vessel plying the lane or steeply increase the cost of insurance. Because of the effective closure of the maritime corridor, this has dislocated the global oil market.
CHART: BUSINESSDAY SOURCE: UBP, 2026
The Strait of Hormuz’s closure has made oil price to reach $80 and beyond. If it remains in that region, it is manageable. However, if the closure of the Strait of Hormuz continues, oil might go beyond $100 per barrel making things bad. According to UBP, oil at $100 is bad for the global economy as it knocks 50 basis points off economic growth and can spike inflation by 2% points.
CHART: BUSINESSDAY SOURCE: BD RESEARCH, 2026
China, India, South Korea and Japan are the countries most affected by the closure of the strait. But these are not the only ones, as no nation is spared the knock-on effects.
Conclusion
Saudi Arabia and the UAE have pipelines to circumvent the Strait of Hormuz. But what the two nations combined produce is far less than what passes the passage daily.
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The American President, Donald Trump, promised government-backed insurance and naval escort to embolden tankers to use the strait.
Unfortunately, as long as the Iranians keep using rockets and drones to attack commercial vessels, the strait would remain unsafe and the assurances of the American President would not cut it.
