Introduction to Hormuz’s Road
Hormuz’s road is an important waterway that lies between Oman and Iran and connects the Persian Gulf with the Gulf of Oman and the Arab Sea. The US Energy Information Management describes it as the "world’s most important oil transit chokepoint."
The Importance of Hormuz’s Road
At its closest point, the waterway is only 33 kilometers wide, whereby the shipping lane is only two miles wide in both directions, which makes it overcrowded and dangerous. Large crude oil volumes from Opec countries such as Saudi Arabia, the United Arab Emirates, Kuwait, and Iraq flow through the street worldwide. According to Vortexa, a consultant for energy and freight market, around 20 million barrels of raw, condensate, and fuels are estimated to be transported daily via the waterway. Qatar, one of the world’s largest producers of liquid gas (LNG), is heavily reliant on the street to send its LNG exports.
Current Situation on the Street
The conflict between Israel and Iran has again focused on safety in the waterway. In the past, Iran threatened to close the Hormuz street for traffic as retaliation on western pressure. Since the struggles between Israel and Iran broke out, there were no major attacks on commercial shipping in the region. However, shipowners are increasingly careful to use the waterway, and some ships have tightened security, while others cancel routes there. The electronic interference with commercial ship navigation systems has increased around the waterway and the wider Gulf in the past few days.
Potential Consequences of Disruptions
Since there is apparently no immediate end to the conflict, the markets remain on high alert. Every blockage of the waterway or disorders of the oil streams could trigger a strong increase in raw prices and hit energy importers, especially in Asia. The costs for the shipping of fuels from the Middle East to East Asia rose by almost 20% in three sessions, while prices for East Africa rose by more than 40%.
Who Will Be Most Affected
The US Energy Information Management estimates that 82% of the raw and other fuel deliveries that crossed the street went to Asian consumers. China, India, Japan, and South Korea were the top destinations, and these four countries together made up almost 70% of all crude oil and condensate flows that crossed the street. These markets would probably be most affected by supply disorders in the street.
Impact on Iran and Gulf States
If Iran took measures to close the street, it could possibly draw military interventions from the United States. The fifth US fleet based in the nearby Bahrain has commissioned the protection of commercial shipping in the region. Any movement of Iran to disturb the oil flows through the waterway could also endanger Tehran’s relationships with Gulf-Arab states such as Saudi Arabia and the United Arab Emirates. So far, the Arab Gulf states have criticized Israel for starting the strikes against Iran, but if Tehran’s actions hinder their oil exports, they could be put under pressure against Iran.
Alternatives to the Street
Gulf Arab nations such as Saudi Arabia and the United Arab Emirates have been looking for alternative routes in recent years to avoid the street. Both countries have set up an infrastructure that enables them to transport some of their crude oil via other routes. Saudi Arabia, for example, runs the East-West crude oil pipeline with a capacity of five million barrels a day, while the UAE connects a pipeline with its onshore oil fields with the Fujairah export connection on the Gulf of Oman. The US Energy Information Management estimates that around 2.6 million barrels of crude oil could be available per day to avoid Hormuz’s road in the event of disorders in the waterway.
