The escalating tension between the US and Iran has resurrected long-standing fears that the Iranian army will try to destroy most of the world’s crude oil supplies by shutting the Hormuz Strait. The Hormuz Strait is a narrow waterway between Iran and Oman, connecting the Persian Gulf with the Gulf of Oman, the Arabian Sea and the Indian Ocean. To get an idea of the importance of this ocean road, let’s look at the map and the statistics.
That’s why the flow is so important to the oil industry.
The Strait handles about one-third of the world’s oil traffic, making it the most important crude oil supply point. In 2015. it processes about 30% of world crude oil and other oil products traded by sea.
In 2016. through the Hormuz Strait have passed a record 18.5 million barrels per day. That year, global demand for oil amounted to 96.6 million barrels per year.
Who will be harmed by the closure of Hormuz Strait?
The most important destinations for crude oil passing through Hormuz Strait are China, Japan, India, South Korea and Singapore. In 2016. 80% of the oil harvested in the Gulf countries goes to Asia.
Threats to close the strait usually lead to higher oil prices. If they finally become a reality, the price of crude oil is likely to increase significantly, potentially damaging average consumers.
Chart and Map: Used with permission of Bloomberg Finance L.P.
Trader Petar Milanov