Energy Prices Spike on Hormuz Shutdown

The Strait of Hormuz is a critical chokepoint for global energy supplies, with about 20% of the world's total oil consumption passing through it daily. In 2024, this amounted to an average of 20 million barrels per day. The narrow waterway is the only sea passage from the Persian Gulf to the open ocean. Roughly one-fifth of global liquefied natural gas (LNG) trade also transits the strait, with major exporter Qatar being heavily reliant on this route. In 2024, Qatar and the United Arab Emirates shipped a combined 10 billion cubic feet of LNG per day through the strait. Any disruption poses a significant threat to global energy security. The vast majority of energy transiting the Strait of Hormuz is destined for Asia. In 2024, an estimated 84% of crude oil and 83% of LNG went to Asian markets. Key importers include China, India, Japan, and South Korea, making their economies particularly vulnerable to a shutdown. At its narrowest point, the strait is only 21 miles wide, with shipping lanes in either direction just two miles wide. This geography makes the passage vulnerable. While Saudi Arabia and the UAE have some pipeline capacity to bypass the strait, it is not enough to accommodate the total volume of oil that normally passes through. This is not the first time tensions in the region have threatened the strait. The waterway's vulnerability has been a factor in regional conflicts for decades, including the Iran-Iraq War in the 1980s. A full closure could push crude oil prices into the triple digits and cause natural gas prices to surge to levels seen during previous energy crises. The current shutdown is a commercial deterrence rather than a physical blockade, as heightened insurance costs and military threats make transit economically unviable. Major shipping companies have suspended transits, and tanker traffic has plummeted. The disruption has already caused a 91% drop in dry bulk carrier transits and has trapped hundreds of vessels in the region. The impact extends beyond crude oil, affecting 16-18% of global seaborne fertilizer exports, primarily sulphur and urea from countries like Saudi Arabia, the UAE, and Qatar. This disruption could lead to downstream effects on agriculture and industrial chemical processes. Approximately 35% of the high-sulfur fuel oil for major Asian shipping hubs like Singapore also originates from the Mideast Gulf, and its disruption is causing bunker prices to rise sharply.