[Editor’s Note] In the early hours of yesterday, the United States announced strikes on three Iranian nuclear facilities, and voices from Iran have indicated a desire to retaliate against the U.S. by blocking the Strait of Hormuz. The likelihood of this scenario on betting websites has also surged above 50%. This report addresses five questions regarding the closure of the Strait of Hormuz:
How significant would the oil or refined oil shortfall be due to the blockade of the Strait of Hormuz?
Are there alternative transport routes after the Strait of Hormuz is closed? How much capacity can be compensated?
Which economies would be more affected if the Strait of Hormuz were to be blocked?
How likely is it that Iran will block the Strait of Hormuz?
What macro and major asset impacts would result if the Strait of Hormuz were truly blocked?
Question 1: How much of a gap in crude oil or refined oil will be caused by the blockade of the Strait of Hormuz?
The Strait of Hormuz is located between Oman and Iran, connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. It is one of the most important oil chokepoints in the world. In 2024, the average oil flow through the strait is expected to be 20 million barrels per day, which includes approximately 14 million barrels/day of crude oil and about 5 million barrels/day of refined oil. This figure accounts for 20% of global crude oil consumption and approximately one-third of the total global seaborne crude oil trade.
Question 2: Are there alternative shipping routes after the closure of the Strait of Hormuz?
Currently, there are three pipeline paths that are being discussed more in the market (Figure 1), but they all have drawbacks.
Alternative Route 1: The East-West Pipeline in Saudi Arabia connects the central city of Abqaiq with the Yanbu export terminal on the Red Sea coast. According to a report by the U.S. Energy Information Administration (EIA), the normal capacity of this pipeline is 5 million barrels per day, and it can theoretically be temporarily expanded to 7 million barrels per day. Estimates show that the current flow of the pipeline is about 500,000 to 1 million barrels per day, indicating that there is still an available capacity of 4 to 6 million barrels per day. However, such a scale of transportation redirection has not yet been validated in practice.
Disadvantages: The transportation time for crude oil to Asia (the largest market in Saudi Arabia) still needs to increase significantly, and these tankers still have to navigate through the southern Red Sea. If the Houthis resume attacks on vessels, there will still be potential threats.
Alternative Route 2: The UAE also operates a pipeline that bypasses the Strait of Hormuz, capable of transporting approximately 1.5 million barrels per day of crude oil to the Fujairah export terminal located outside the Strait of Hormuz. This facility is situated outside the strait and has the largest underground oil storage facility in the world, with a capacity to store 42 million barrels of crude oil.
Disadvantages: Currently, Fujairah's crude oil export volume has reached 1 million barrels per day, so the remaining capacity may be limited to several hundred thousand barrels per day.
Alternative Route 3: The Jask Oil Terminal located in the Oman Gulf was officially inaugurated by former Iranian President Hassan Rouhani in July 2021. Iran has the capacity to export an estimated 300,000 to 500,000 barrels per day from this terminal via the Goreh-Jask pipeline.
Disadvantages: Limited capacity and transport capability, primarily serving Iran's domestic oil exports. In addition, terminal construction is not yet fully completed.
In summary, even if the three alternative transportation routes mentioned above are all activated in an optimistic scenario, the maximum replaceable capacity is only about 5-7 million barrels per day, accounting for 1/4 to 1/3 of the total capacity of the Strait of Hormuz.
Figure 1: Three alternative transportation pipeline routes
3. Which economies would be more affected if the Strait of Hormuz is blocked?
The Asian economies are the most affected. EIA estimates show that in 2024, 84% of the crude oil and 83% of the liquefied natural gas transported through the Strait of Hormuz will flow to the Asian market. China, India, Japan, and South Korea are the primary destinations for crude oil flowing to Asia via the Strait of Hormuz, with imports from the Strait of Hormuz in 2024 being 4.8 million, 1.9 million, 1.5 million, and 1.7 million barrels per day, accounting for 29%, 34%, 46%, and 57% of their total crude oil imports respectively, experiencing the greatest impact from supply disruptions in Hormuz (Figures 2 and 3).
Relatively speaking, Europe and the United States are less affected. In 2024, Europe is expected to import about 700,000 barrels of crude oil per day from the Strait of Hormuz, accounting for 6% of its total consumption; the United States is expected to import about 500,000 barrels, accounting for 5% and 2% of its crude oil imports and consumption, respectively, both of which are relatively less affected.
Figure 2: Recent destinations of crude oil exported from the Strait of Hormuz (million barrels/day)
Figure 3: The proportion of imports through the Strait of Hormuz in total crude oil consumption
4. How likely is Iran to block the Strait of Hormuz?
Although the probability of a blockade of the Strait of Hormuz on Polymarket has risen to over 50%, we believe the actual likelihood of implementing the blockade remains low (below 10%).
Reason 1: This threat has appeared many times in history, but never happened. Over the past 40 years, Iran's leadership has repeatedly threatened to close the strait whenever it believes its economic sovereignty is being challenged. This threat pattern has a distinctly cyclical character. Iran threatened to close the strait after Iraq attacked oil infrastructure on Iran's island of Kharg during the Iran-Iraq war in the 1980s. In the 1990s, the blockade threat was further exacerbated by a dispute between Iran and the UAE over control of several small islands in the strait. Between late 2007 and 2008, Iranian speedboats and U.S. warships engaged in a series of tense maritime standoffs in the Strait of Hormuz. In June 2008, Iran made it clear that the strait would be blocked in the event of a U.S. attack, and the U.S. responded that any closure of the strait would be considered an act of war. Since then, Iran has again threatened to seal the straits in 2012, 2018 and 2019 in response to sanctions imposed by the United States and the European Union on its nuclear program. However, even in the face of severe sanctions, Iran has never (successfully) actually closed the straits.
Reason 2: The likelihood of Iran blocking the Strait faces multiple constraints. First, a blockade would incur huge costs, unless Iran can convince the Gulf Cooperation Council (GCC) that this action is for self-defense; otherwise, it would not only severely violate international norms but also directly harm the economic interests of most Gulf countries. Saudi Arabia exports the most oil through the Strait, and although it can divert some flow through pipelines, the impact would still be significant. Iraq relies on the Strait for 85% of its oil transport, while Kuwait, Qatar, and Bahrain's oil exports are entirely dependent on this waterway. A disruption of the Strait would also anger its major clients—China, India, Japan, and South Korea. Similarly, Iran's own economy is highly dependent on the free passage through the Strait, as its oil exports are entirely via maritime routes and primarily directed to China. Blocking the Strait would impact the relationship between Iran and China, threatening its economic lifeline.
Reason 3: Hossein Shariatmadari, who just called for "immediate missile strikes against the U.S. Navy fleet stationed in Bahrain, and simultaneously closing the Strait of Hormuz to prohibit the passage of ships from the U.S., UK, Germany, and France," comes from Iran's most influential conservative newspaper, Kayhan. It serves as the voice of the domestic hardline conservatives and has repeatedly made extreme statements, even facing criticism from the domestic news supervision committee. Its main purpose is to cater to the sentiments of the domestic hawkish populace and to test international reactions or exert pressure.
We believe that in severe situations, Iran is more likely to implement retaliation by threatening or harassing oil tankers from the US, UK, and other countries, rather than opting for a complete blockade of the strait. Of course, even harassment could temporarily push up oil prices.
5. What macro and asset class impacts would occur if the Strait of Hormuz were to be blocked?
The market generally believes that under this extreme scenario, oil prices may rise to around 100-150 USD/barrel.
Although the United States has basically achieved self-sufficiency in crude oil production, the rise in oil prices still has global effects. Roughly calculated, for every $10 increase in oil prices, it will lead to a short-term inflation boost of about 0.2pp in the U.S. This means that if the blockade of the Strait of Hormuz causes oil prices to double, the year-over-year inflation rate in the U.S. may rise by 2pp to an important 4-4.5% in the coming months. Although energy shocks are similar to tariff shocks, they only lead to a one-time increase in the level of prices (rather than the rate of inflation) as long as inflation expectations remain anchored. However, considering that this "stagflationary shock" may combine with tariffs in the second half of the year, it may encourage manufacturing companies to raise their prices. Therefore, the likelihood of the Federal Reserve lowering interest rates within the year will further decrease (it may not lower rates).
This passive hawkish environment may replicate the situation of 2022 (though to a milder extent). In this environment, the dollar faces some rebound upward pressure (rate hike pressure + the U.S. transitioning to an energy surplus nation), the interest rate curve tends to flatten (driven by rate hike expectations), and global risk assets decline. If inflation expectations remain anchored, the short-term outlook for gold may lean towards bearish rather than bullish (the suppressive effects of a strong dollar + high interest rates outweigh the safe-haven support).
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5 Issues with the Closure of the Strait of Hormuz
[Editor’s Note] In the early hours of yesterday, the United States announced strikes on three Iranian nuclear facilities, and voices from Iran have indicated a desire to retaliate against the U.S. by blocking the Strait of Hormuz. The likelihood of this scenario on betting websites has also surged above 50%. This report addresses five questions regarding the closure of the Strait of Hormuz:
How significant would the oil or refined oil shortfall be due to the blockade of the Strait of Hormuz?
Are there alternative transport routes after the Strait of Hormuz is closed? How much capacity can be compensated?
Which economies would be more affected if the Strait of Hormuz were to be blocked?
How likely is it that Iran will block the Strait of Hormuz?
What macro and major asset impacts would result if the Strait of Hormuz were truly blocked?
Question 1: How much of a gap in crude oil or refined oil will be caused by the blockade of the Strait of Hormuz?
The Strait of Hormuz is located between Oman and Iran, connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. It is one of the most important oil chokepoints in the world. In 2024, the average oil flow through the strait is expected to be 20 million barrels per day, which includes approximately 14 million barrels/day of crude oil and about 5 million barrels/day of refined oil. This figure accounts for 20% of global crude oil consumption and approximately one-third of the total global seaborne crude oil trade.
Question 2: Are there alternative shipping routes after the closure of the Strait of Hormuz?
Currently, there are three pipeline paths that are being discussed more in the market (Figure 1), but they all have drawbacks.
Alternative Route 1: The East-West Pipeline in Saudi Arabia connects the central city of Abqaiq with the Yanbu export terminal on the Red Sea coast. According to a report by the U.S. Energy Information Administration (EIA), the normal capacity of this pipeline is 5 million barrels per day, and it can theoretically be temporarily expanded to 7 million barrels per day. Estimates show that the current flow of the pipeline is about 500,000 to 1 million barrels per day, indicating that there is still an available capacity of 4 to 6 million barrels per day. However, such a scale of transportation redirection has not yet been validated in practice.
Disadvantages: The transportation time for crude oil to Asia (the largest market in Saudi Arabia) still needs to increase significantly, and these tankers still have to navigate through the southern Red Sea. If the Houthis resume attacks on vessels, there will still be potential threats.
Alternative Route 2: The UAE also operates a pipeline that bypasses the Strait of Hormuz, capable of transporting approximately 1.5 million barrels per day of crude oil to the Fujairah export terminal located outside the Strait of Hormuz. This facility is situated outside the strait and has the largest underground oil storage facility in the world, with a capacity to store 42 million barrels of crude oil.
Disadvantages: Currently, Fujairah's crude oil export volume has reached 1 million barrels per day, so the remaining capacity may be limited to several hundred thousand barrels per day.
Alternative Route 3: The Jask Oil Terminal located in the Oman Gulf was officially inaugurated by former Iranian President Hassan Rouhani in July 2021. Iran has the capacity to export an estimated 300,000 to 500,000 barrels per day from this terminal via the Goreh-Jask pipeline.
Disadvantages: Limited capacity and transport capability, primarily serving Iran's domestic oil exports. In addition, terminal construction is not yet fully completed.
In summary, even if the three alternative transportation routes mentioned above are all activated in an optimistic scenario, the maximum replaceable capacity is only about 5-7 million barrels per day, accounting for 1/4 to 1/3 of the total capacity of the Strait of Hormuz.
Figure 1: Three alternative transportation pipeline routes
3. Which economies would be more affected if the Strait of Hormuz is blocked?
The Asian economies are the most affected. EIA estimates show that in 2024, 84% of the crude oil and 83% of the liquefied natural gas transported through the Strait of Hormuz will flow to the Asian market. China, India, Japan, and South Korea are the primary destinations for crude oil flowing to Asia via the Strait of Hormuz, with imports from the Strait of Hormuz in 2024 being 4.8 million, 1.9 million, 1.5 million, and 1.7 million barrels per day, accounting for 29%, 34%, 46%, and 57% of their total crude oil imports respectively, experiencing the greatest impact from supply disruptions in Hormuz (Figures 2 and 3).
Relatively speaking, Europe and the United States are less affected. In 2024, Europe is expected to import about 700,000 barrels of crude oil per day from the Strait of Hormuz, accounting for 6% of its total consumption; the United States is expected to import about 500,000 barrels, accounting for 5% and 2% of its crude oil imports and consumption, respectively, both of which are relatively less affected.
Figure 2: Recent destinations of crude oil exported from the Strait of Hormuz (million barrels/day)
Figure 3: The proportion of imports through the Strait of Hormuz in total crude oil consumption
4. How likely is Iran to block the Strait of Hormuz?
Although the probability of a blockade of the Strait of Hormuz on Polymarket has risen to over 50%, we believe the actual likelihood of implementing the blockade remains low (below 10%).
Reason 1: This threat has appeared many times in history, but never happened. Over the past 40 years, Iran's leadership has repeatedly threatened to close the strait whenever it believes its economic sovereignty is being challenged. This threat pattern has a distinctly cyclical character. Iran threatened to close the strait after Iraq attacked oil infrastructure on Iran's island of Kharg during the Iran-Iraq war in the 1980s. In the 1990s, the blockade threat was further exacerbated by a dispute between Iran and the UAE over control of several small islands in the strait. Between late 2007 and 2008, Iranian speedboats and U.S. warships engaged in a series of tense maritime standoffs in the Strait of Hormuz. In June 2008, Iran made it clear that the strait would be blocked in the event of a U.S. attack, and the U.S. responded that any closure of the strait would be considered an act of war. Since then, Iran has again threatened to seal the straits in 2012, 2018 and 2019 in response to sanctions imposed by the United States and the European Union on its nuclear program. However, even in the face of severe sanctions, Iran has never (successfully) actually closed the straits.
Reason 2: The likelihood of Iran blocking the Strait faces multiple constraints. First, a blockade would incur huge costs, unless Iran can convince the Gulf Cooperation Council (GCC) that this action is for self-defense; otherwise, it would not only severely violate international norms but also directly harm the economic interests of most Gulf countries. Saudi Arabia exports the most oil through the Strait, and although it can divert some flow through pipelines, the impact would still be significant. Iraq relies on the Strait for 85% of its oil transport, while Kuwait, Qatar, and Bahrain's oil exports are entirely dependent on this waterway. A disruption of the Strait would also anger its major clients—China, India, Japan, and South Korea. Similarly, Iran's own economy is highly dependent on the free passage through the Strait, as its oil exports are entirely via maritime routes and primarily directed to China. Blocking the Strait would impact the relationship between Iran and China, threatening its economic lifeline.
Reason 3: Hossein Shariatmadari, who just called for "immediate missile strikes against the U.S. Navy fleet stationed in Bahrain, and simultaneously closing the Strait of Hormuz to prohibit the passage of ships from the U.S., UK, Germany, and France," comes from Iran's most influential conservative newspaper, Kayhan. It serves as the voice of the domestic hardline conservatives and has repeatedly made extreme statements, even facing criticism from the domestic news supervision committee. Its main purpose is to cater to the sentiments of the domestic hawkish populace and to test international reactions or exert pressure.
We believe that in severe situations, Iran is more likely to implement retaliation by threatening or harassing oil tankers from the US, UK, and other countries, rather than opting for a complete blockade of the strait. Of course, even harassment could temporarily push up oil prices.
5. What macro and asset class impacts would occur if the Strait of Hormuz were to be blocked?
The market generally believes that under this extreme scenario, oil prices may rise to around 100-150 USD/barrel.
Although the United States has basically achieved self-sufficiency in crude oil production, the rise in oil prices still has global effects. Roughly calculated, for every $10 increase in oil prices, it will lead to a short-term inflation boost of about 0.2pp in the U.S. This means that if the blockade of the Strait of Hormuz causes oil prices to double, the year-over-year inflation rate in the U.S. may rise by 2pp to an important 4-4.5% in the coming months. Although energy shocks are similar to tariff shocks, they only lead to a one-time increase in the level of prices (rather than the rate of inflation) as long as inflation expectations remain anchored. However, considering that this "stagflationary shock" may combine with tariffs in the second half of the year, it may encourage manufacturing companies to raise their prices. Therefore, the likelihood of the Federal Reserve lowering interest rates within the year will further decrease (it may not lower rates).
This passive hawkish environment may replicate the situation of 2022 (though to a milder extent). In this environment, the dollar faces some rebound upward pressure (rate hike pressure + the U.S. transitioning to an energy surplus nation), the interest rate curve tends to flatten (driven by rate hike expectations), and global risk assets decline. If inflation expectations remain anchored, the short-term outlook for gold may lean towards bearish rather than bullish (the suppressive effects of a strong dollar + high interest rates outweigh the safe-haven support).