While there have been no major disruptions to the global oil supply so far, the attacks on Iran — by Israel and then the US — have rattled investors, sending oil futures soaring by about 10 per cent since the start of hostilities, among fears Iran could retaliate by disrupting shipping in the Strait of Hormuz.
From the perspective of the global economy, there are few places as strategically important. The waterway, located between the Persian Gulf and the Gulf of Oman, is only 33.7 kilometres wide at its narrowest point. It's the only way to ship crude from the oil-rich Persian Gulf to the rest of the world. Iran controls its northern side.
About 20 million barrels of oil, about one-fifth of daily global production, flow through the strait every day, according to the US Energy Information Administration (EIA), which called the channel a "critical oil chokepoint".
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On Sunday evening, following US airstrikes on three of Iran's nuclear facilities, Brent crude, the global benchmark, briefly surged above $US80 ($125) per barrel, according to Refinitiv data, the first time that's happened since January. Before the conflict, prices had largely hovered between $US60 and $US75 a barrel since August 2024.
But over the course of the Asian trading day on Monday, Brent and WTI, the US benchmark, gave up their early gains. Brent last traded 0.53 per cent lower at $US76.49 per barrel, while WTI was 0.62 per cent lower at $US73.38.
Whether oil prices will climb further now depends on Iran's response. Rob Thummel, senior portfolio manager at energy investment firm Tortoise Capital, told CNN that a potential disruption to the Iran-controlled sea route would cause oil prices to surge toward $US100 per barrel.
A prominent adviser to Iran's supreme leader, Ayatollah Ali Khamenei, has already called for the closure of the Strait.
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A functioning Strait of Hormuz is "absolutely essential" to the health of the global economy, he said.
"Following America's attack on the Fordow nuclear installation, it is now our turn," warned Hossein Shariatmadari, the editor-in-chief of the hardline Kayhan newspaper, a well-known conservative voice who has previously identified himself as a "representative" for Khamenei.
Geographic leverage over global shipping gives Iran the "capacity to cause a shock in oil markets, drive up oil prices, drive inflation, collapse Trump's economic agenda," Mohammad Ali Shabani, an Iran expert and editor of the Amwaj news outlet, told CNN.
When it comes to moving oil, the Strait is actually much narrower than its 33.7-kilometre official width. The navigable shipping lanes for massive supertankers are only about 3.2 kilometres wide in each direction, requiring vessels to pass through both Iranian and Omani territorial waters.
But Vandana Hari, founder and CEO of Vanda Insights, which tracks energy markets, sees Iran's blocking of the Strait as a "remote tail risk". The presence of a beefed-up US naval fleet in the region is both a deterrent and a response tool, she said.
"Iran has a lot to lose and very little, if anything, to gain by attempting to close the Strait," Hari said. "Iran cannot afford to turn its oil-producing neighbors, who have been neutral or even sympathetic towards the Islamic Republic as it faced Israeli and US attacks, into enemies, any more than trigger the ire of its main crude market, China."
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A closure of the Strait would be particularly detrimental to China and other Asian economies which rely on the crude oil and natural gas shipped through the waterway. The EIA estimates that 84 per cent of the crude oil and 83 per cent of the liquefied natural gas that moved through the Strait of Hormuz last year went to Asian markets.
China, the largest buyer of Iranian oil, sourced 5.4 million barrels per day through the Strait of Hormuz in the first quarter this year, while India and South Korea imported 2.1 million and 1.7 million barrels per day, respectively, according to the EIA's estimates. In comparison, the US and Europe imported just 400,000 and 500,000 barrels per day, respectively, in the same period, according to the EIA.
At a regular Foreign Ministry press conference on Monday, China stressed the importance of the Persian Gulf and its surrounding waters for international trade, saying that maintaining security and stability in the region serves the common interests of the international community.
"China calls on the international community to step up efforts to promote de-escalation of the conflict and to prevent regional turmoil from exerting a greater impact on global economic development," Foreign Ministry spokesperson Guo Jiakun said.
On Sunday, India's Minister for Petroleum and Natural Gas Hardeep Singh Puri sought to reassure jittery investors on X that the country has "diversified" its oil supplies in the past few years.
"A large volume of our supplies do not come through the Strait of Hormuz now. Our Oil Marketing Companies have supplies of several weeks and continue to receive energy supplies from several routes," he said. "We will take all necessary steps to ensure stability of supplies of fuel to our citizens."
