Strait of Hormuz Closure Threatens Oil Markets Amidst Iran Conflict
Oil prices are facing significant upward pressure following the joint U.S.-Israeli strikes against Iran, with the potential closure of the Strait of Hormuz emerging as a major concern. The Strait, a critical chokepoint for global oil supplies, is now at the center of escalating tensions, prompting fears of disruptions to energy markets and broader economic consequences.
Iran’s Strategic Importance in Global Oil Supply
Iran is a significant player in the global oil market, extracting approximately 3.1 million barrels per day, according to the Organization of the Petroleum Exporting Countries (OPEC). The nation possesses the third-largest crude oil reserves globally, making it a strategically important asset. Notably, Iranian oil production boasts a low cost, potentially reaching as low as $10 per barrel or less.
Despite this potential, U.S. Sanctions have severely restricted Iran’s oil exports, which now primarily flow to China, absorbing around 95% of its sales as of 2025. Crude oil prices already experienced a surge of 9% on Saturday, February 29, 2026, when financial markets closed, and this trend is expected to continue when trading resumes.
The Strait of Hormuz: A Critical Chokepoint
The Strait of Hormuz, situated between Iran and Oman, is a strategically vital maritime corridor through which approximately 20% of the world’s oil production transits. In response to the Western strikes, the Iranian Revolutionary Guard Corps (IRGC) announced that navigation in the strait was “no longer allowed.”
However, Iranian officials have not officially closed the strait. Several tanker owners have suspended oil and gas shipments as a precautionary measure. As of March 1, 2026, vessels were receiving VHF transmissions from the IRGC stating “no ship is allowed to pass the Strait of Hormuz.” Satellite images show vessels congregating near ports like Fujairah in the United Arab Emirates, awaiting further developments.
Historical Precedents and Current Risks
Iran has repeatedly threatened to close the Strait of Hormuz during periods of heightened tension, dating back to 1979, including during the tanker war between 1984 and 1988. However, these threats have never been fully carried out.
The immediate risk lies in a “risk premium” being integrated into market prices. Similar tensions in June 2025 caused a 15% jump in oil prices within days. The U.S. Navy has warned against navigation in the Gulf, Gulf of Oman, North Arabian Sea, and the Strait of Hormuz, stating it cannot guarantee the safety of shipping. Greece has advised its vessels to avoid transiting the waterway.
Impact on Global Trade
Approximately 20% of global oil, originating from producers such as Saudi Arabia, the UAE, Iraq, Kuwait, and Iran, passes through the Strait of Hormuz, along with substantial volumes of Liquefied Natural Gas (LNG) from Qatar. Fourteen LNG tankers have already slowed down, altered course, or stopped in or around the Strait, potentially disrupting Qatari LNG exports.