The Strait of Hormuz, a narrow waterway connecting the Persian Gulf to the Indian Ocean, is the lifeblood of global oil trade. Handling roughly 20-30% of the world’s oil supply—approximately 20 million barrels per day—this chokepoint is critical to energy markets. Recent escalations in the Israel-Iran conflict, coupled with Iran’s threats to close the Strait in retaliation for U.S. and Israeli strikes, have sent shockwaves through global markets. With Brent crude prices already spiking to a five-month high of $81.40 per barrel on June 23, 2025, analysts warn that a full or partial closure could push prices to $100-$130 per barrel, impacting economies worldwide. This blog post delves into the potential consequences of Iran’s threats, the likelihood of a Strait closure, and the broader implications for oil markets, with a focus on Brent crude prices, the South Pars gas field, and global energy security.
Understanding the Strait of Hormuz’s Strategic Role
The Strait of Hormuz, located between Iran to the north and Oman and the UAE to the south, is the world’s most critical oil transit chokepoint. According to the U.S. Energy Information Administration (EIA), about one-quarter of global seaborne oil trade and one-fifth of global oil consumption flowed through the Strait in the 2024 and early 2025. Additionally, 20% of global liquefied natural gas (LNG) trade, primarily from Qatar, transits this 21-mile-wide passage. Major oil-producing countries like Saudi Arabia, Iraq, and Iran rely on the Strait to export their crude to Asian economies, with China being the largest importer of oil, accounting for nearly three-quarters of a significant portion of Iran’s exports.
Iran’s strategic position along the Strait gives it significant leverage. While Iran does not have the legal authority to close the waterway, it could disrupt shipping through military actions, such as laying mines, attacking vessels, or targeting oil infrastructure. Such disruptions could severely limit the flow of oil, driving up global prices and triggering economic ripple effects globally.
Recent Developments: Israel-Iran Conflict and U.S. Involvement
Tensions in the Middle East have been simmering since Israel’s strikes on Iranian facilities, including the South Pars gas field and nuclear sites, began on June 13, 2025. The South Pars field, the world’s largest natural gas reserve, was partially suspended after an Israeli attack, raising concerns about gas supply disruptions. Iran, a key OPEC member and the third-largest crude oil producer in the organization, responded with missile strikes and threats to close the Strait of Hormuz. The U.S. escalated the situation by joining Israel in airstrikes targeting Iranian nuclear facilities at Natanz, Isfahan, and Fordow on June 21-22, 2025, prompting Iran’s parliament to approve a motion to block the Strait. However, the final decision now rests with Iran’s Supreme National Security Council.
These events have already impacted oil markets. Brent crude futures surged 5.7% to $79 per barrel, while U.S. West Texas Intermediate (WTI) futures hit $75.80 per barrel on June 23, 2025. The Multi Commodity Exchange (MCX) in India reported crude oil futures reaching a January 2025 high of ₹6,550 per barrel. Analysts from Goldman Sachs and JPMorgan warn that a prolonged disruption could push Brent prices to $110-$130 per barrel, with gasoline prices potentially rising by $1.25 per gallon in the U.S..
Potential Impacts of a Strait of Hormuz Closure
1. Global Oil Price Spikes
A full closure of the Strait of Hormuz would disrupt approximately 20 million barrels of oil per day, representing 20-30% of global supply. Goldman Sachs estimates that even a partial disruption—halving flows for a month—could push Brent crude to $110 per barrel, with prices averaging $95 in Q4 2025. JPMorgan’s worst-case scenario predicts prices reaching $120-$130 per barrel, with U.S. gas prices climbing to $4.50 per gallon nationally and $6.00 in California. Globally, gas prices could rise by 10-20¢ per gallon, impacting consumers and industries reliant on fuel.
Europe, heavily dependent on Gulf oil, would face severe supply shortages. Asian economies, particularly China, Japan, and India, which import 80% of their crude through the Strait, would also be hit hard. India, for instance, consumes 5.5 million barrels daily, with 1.5 million transiting the Strait. A $10 per barrel increase could shave 0.5% off India’s GDP, prompting New Delhi to accelerate LNG imports.
2. Economic Ripple Effects
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Soaring oil prices could reignite global inflation, stalling central banks’ plans for rate cuts. Panmure Liberum warns that a Strait closure could trigger a “stagflationary shock” similar to the 2022 energy crisis following Russia’s invasion of Ukraine. Higher shipping costs and insurance premiums would further strain global supply chains, impacting industries like transportation, manufacturing, and airlines. The International Monetary Fund has cautioned that U.S. strikes on Iran could damage global economic growth, with the Strait’s accessibility being “pivotal”.
3. Impact on Iran’s Economy
Ironically, closing the Strait could backfire on Iran. The country relies on oil exports, primarily to China, for revenue. A blockade would halt its own crude shipments, depriving it of hard currency and isolating its economy further. U.S. Secretary of State Marco Rubio called such a move “economic suicide,” noting that it would likely provoke U.S. retaliation against Iran’s oil infrastructure, such as the Kharg Island export facility. Experts argue that Iran’s threats may be more about political signaling to rally domestic support than a viable strategy.
South Pars Gas Field and Energy Infrastructure Attacks
The partial suspension of production at Iran’s South Pars gas field, following an Israeli attack on June 15, 2025, has heightened fears of supply disruptions. South Pars, shared with Qatar, is critical for Iran’s gas exports and domestic energy needs. Unverified posts on X claim Israel’s strikes also targeted the Shahran oil field and multiple refineries, potentially reducing Iran’s export capacity by 2 million barrels per day. While these claims lack confirmation, they underscore the vulnerability of Iran’s energy infrastructure.
Iran’s capability to disrupt oil supply extends beyond the Strait. In 2019, it was accused of attacking Saudi Arabia’s Abqaiq oil facilities, disrupting 7% of global production. If Iran targets regional infrastructure in retaliation, it could exacerbate supply shortages, benefiting speculative traders and non-regional producers like the U.S..
Likelihood of a Strait Closure
Despite Iran’s threats, experts believe a full blockade is unlikely. Iran has issued similar warnings in the past without following through, wary of alienating allies like China. VK Vijayakumar of Geojit Investments notes that a closure would harm Iran and China more than others, given their reliance on the Strait. Saudi Arabia and the UAE have limited pipeline alternatives, with a combined capacity of 6.8 million barrels per day, far below the Strait’s 20 million. However, diplomatic efforts, such as Oman-mediated talks or U.S.-Iran backchannels, could de-escalate tensions.
The U.S. and its allies have strong economic incentives to prevent a sustained disruption. The U.S. imported 500,000 barrels per day through the Strait in 2024, accounting for 7% of its crude imports. A prolonged closure would force the International Energy Agency (IEA) to tap emergency reserves, though OPEC+’s 5.39 million barrels per day spare capacity might not suffice.
Mitigating the Risks
Countries are already taking steps to reduce their vulnerability. India has diversified its oil imports, with Russian crude—bypassing the Strait—accounting for 38% of its imports by May 2025. Saudi Arabia and the UAE are expanding pipeline capacities, though these remain insufficient. The U.S., producing 13.4 million barrels daily and holding over 200 million barrels in stockpiles, is less exposed but not immune.
Investors and policymakers must remain vigilant. Goldman Sachs notes a 52% probability of a Strait closure in 2025, based on Polymarket data. While markets have priced in a $12 geopolitical risk premium, further escalation could drive prices higher. Long-term, accelerating the transition to renewable energy could reduce reliance on volatile oil markets.
Iran’s threats to close the Strait of Hormuz have thrust global oil markets into a state of uncertainty. With Brent crude prices already at a five-month high, a full or partial closure could push prices to $100-$130 per barrel, triggering inflation, supply chain disruptions, and economic slowdowns. However, Iran’s own economic vulnerabilities and the risk of antagonizing China make a prolonged blockade unlikely. The partial suspension of South Pars and potential attacks on Iran’s oil infrastructure highlight the fragility of global energy security. As tensions simmer, diplomatic de-escalation and diversified energy strategies will be critical to stabilizing markets.
Stay informed about the Israel-Iran conflict and its impact on oil prices by following trusted sources like Reuters and the EIA. The Strait of Hormuz remains a geopolitical flashpoint, and its fate will shape the global economy in 2025 and beyond.
External Links for References
- U.S. Energy Information Administration (EIA) – Strait of Hormuz – Detailed data on oil and LNG flows through the Strait.
- Reuters – Oil Prices Fall After U.S. Strikes on Iran – Latest updates on oil market reactions.
- Goldman Sachs – Oil Price Forecast – Analysis of potential price scenarios.
- Business Insider – Oil Price Impact of U.S.-Iran Strikes – JPMorgan’s outlook on oil prices.
