June 26, 2025

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The impact of closing the Strait of Hormuz.

Welcome to Issue #018 of The Sidekick!

Today, we examine the flashing red light that’s on every supply chain manager’s radar: Iran’s threat to close the Strait of Hormuz. How exactly could they do it, what would be the consequences, and how can the U.S. respond?

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Let's get into Issue #018...

Consequences of closing the Strait of Hormuz.

Iran’s parliament has reportedly approved a measure to close the Strait of Hormuz. Doing so will cause ripple effects on the global oil market, impacting economies not only in the Middle East but also in China and the United States.

This strategic waterway, described as one of the world’s strategic chokepoints, sits between Oman and Iran, linking the Persian Gulf to the Gulf of Oman and the Arabian Sea. It’s only 33 kilometers wide at its narrowest point, with shipping lanes that are just two miles wide in either direction.

This tiny passage is a major artery for oil transport, with around one-fifth of the world’s oil passing through it. Between 18 and 20 million barrels of oil per day travel through the strait. 

How Might Iran Close the Strait?

Iran could potentially close the Strait of Hormuz through a combination of military and strategic tactics. One approach might involve deploying naval forces to establish a blockade, effectively controlling access to the strait by positioning warships and smaller vessels at critical points to intercept commercial shipping.

Another method could be laying naval mines in the waters, creating hazardous conditions that deter passage and disrupt oil transport. Despite bombardment of launch facilities by Israel, Iran still has a range of missile capabilities that could threaten vessels in the strait.

The use of proxy groups in the region (such as Yemen’s Houthis) to target vessels or shipping infrastructure is another tactic that could create instability and effectively close the strait to commercial traffic.

Cyber operations like GPS jamming might also come into play, disrupting port facilities or maritime navigation systems. 

The Strait of Hormuz is crucial for OPEC countries like Saudi Arabia, Iran, the UAE, Kuwait, and Iraq, which heavily rely on it for their oil exports. Plus, Qatar, the largest exporter of liquefied natural gas (LNG), sends nearly all of its LNG through this route.

So, if anything disrupts traffic here, it can send shockwaves throughout the entire oil market.

Economic Fallout

If Iran were to close the Strait of Hormuz, we could expect a rapid spike in oil prices. Traders would react quickly, and we’d likely see prices soar, affecting everything from gas at the pump to the cost of goods.

Countries that rely on oil imports, especially in Europe and Asia, would feel the pressure almost immediately. This could lead to economic instability, and nobody wants that.

Impact on Arab Countries

For Arab nations in the Gulf Cooperation Council (GCC), the effects would be significant. While countries like Saudi Arabia and the UAE are exploring alternative routes, such as pipelines to avoid the Persian Gulf, these aren’t fully operational yet.

Rising oil prices could stir social unrest, especially in countries with weaker economies. The GCC might also lean more toward the West for military support to ensure safe shipping.

According to the Washington Post, if Iran moves to block shipping traffic, analysts predict a sharp spike in oil prices, possibly pushing them past $100 per barrel. That’s a more than 30% increase. This would likely translate to higher gas prices for consumers, potentially raising the average price from around $3.22 to nearly $4 per gallon.

Although some experts believe that Iran may not follow through on its threats due to the risks of alienating key allies like China, any attempt to disrupt commerce could still lead to panic buying and temporary price increases. 

Moreover, actions such as Iran jamming GPS signals of tankers already indicate attempts to interfere with maritime traffic, which could contribute to instability in the region. While immediate price spikes are expected, some analysts suggest that unless Iran enacts a decisive blockade, any increases in oil prices may not be sustained in the long term, especially given the U.S. energy independence and reduced reliance on Middle Eastern oil.

But China, as the world’s largest oil importer, would face serious challenges if the strait were closed. A lot of its oil supply passes through this narrow passage. Higher oil prices could slow down China’s economic growth, pushing the government to tap into reserves or seek out alternative suppliers, possibly strengthening ties with countries like Russia. This could complicate international relations and make the geopolitical landscape even trickier.

Keeping the Strait Open

This week, all eyes will be on the U.S. Navy’s Fifth Fleet, based out of Bahrain with a mission to protect the free flow of oil through the Persian Gulf. We can expect a demonstration of naval power, mine-sweeping operations, and the bottling-up or elimination of Iranian naval threats in the area, supported by air power.

One strategic problem is that there simply isn’t much room to maneuver in the strait to escort or guard the oil tankers as they pass through.

Keeping a pulse on the industry.

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