The Importance of the Strait of Hormuz - Impact on Oil Prices and Future Points of Interest

Overview

## 1. Report Overview This report, dated July 1, 2025, by Mie Murai, Research Director at Marubeni Economic Research Institute, analyzes the geopolitical importance of the Strait of Hormuz as one of the world's largest energy chokepoints and its impact on oil markets. The Strait of Hormuz is a waterway between the Persian Gulf and the Gulf of Oman, through which more than one-quarter of global maritime oil and petroleum product trade and approximately one-fifth of LNG passes, making it an extremely important sea route. The report comprehensively examines the strait's geographical characteristics, volume of oil transit, geopolitical risks, price impact mechanisms, and possibilities for alternative routes, providing implications for future oil markets. ## 2. Key Points The main points of the report highlight that while the Strait of Hormuz has limited alternative land transportation options, its width is approximately 34km at the narrowest point, but navigable shipping lanes are limited to about 3km on each side. Over 80% of transiting oil and LNG is destined for Asia, primarily China and India, making it an extremely important supply route for Asian economies. Based on 2024 data, the strategic importance of this strait has further increased due to recent heightened geopolitical tensions. The possibility of Iran blocking the Strait of Hormuz is recognized as a significant risk factor with immediate impact on oil prices. ## 3. Geographical and Strategic Importance of the Strait of Hormuz The Strait of Hormuz faces Iran, and as part of the shipping lanes pass through Iranian territorial waters, the possibility of blockade has been repeatedly raised as a countermeasure during conflicts involving Iran. Iran is believed to possess means of physical blockade including ship attacks using missiles and drones, mine laying, and ship obstruction in shipping lanes. While an actual blockade has never occurred, if implemented, it would inevitably lead to criticism from the international community for disrupting energy markets and direct confrontation with the United States, which has deployed bases in the surrounding area. Additionally, as Iran's own exports also pass through the strait, pressure from China, its largest export destination, would be inevitable, making the possibility of a long-term blockade low. ## 4. Role in Oil Transportation Pipelines passing through the Strait of Hormuz include the East-West Crude Oil Pipeline (Petroline) with a capacity of 5.0 million barrels per day, Abu Dhabi Crude Oil Pipeline with 1.5 million barrels per day, and Abqaiq-Yanbu NGL Pipeline with 0.3 million barrels per day, totaling 6.8 million barrels per day of transportation capacity. However, effective unused capacity is estimated at only 2.6 million barrels per day. While these pipelines function as important alternative transportation means bypassing the Strait of Hormuz, they are limited compared to maritime transportation volume and cannot serve as complete alternatives. ## 5. Analysis of Geopolitical Risks Oil prices surged following Israeli attacks beginning on June 13, and after U.S. military strikes on Iranian nuclear facilities on June 22, Brent crude, which readily reflects Middle Eastern influences, temporarily rose above $80 the following business day. However, oil prices plummeted the next day as Iran's retaliation remained restrained. The oil market, in addition to oversupply concerns, has spare production capacity from OPEC Plus and stockpiles from International Energy Agency member countries, making any rise likely to be temporary unless actual supply disruptions occur. However, Iran's suggestions of blocking the Strait of Hormuz have the effect of maintaining market vigilance by demonstrating retaliatory attack capabilities and intentions. ## 6. Mechanisms of Impact on Oil Prices If the Strait of Hormuz were blocked, prices could reach over $100 per barrel according to some estimates, with the potential for sharp rises based on heightened crisis sentiment alone even without actual supply impacts. The impact on oil prices varies significantly depending on the duration, scope, and effectiveness of any blockade. Even short-term blockade threats alone would significantly increase risk premiums, and actual blockade would affect more than one-quarter of global oil supply. Additionally, more realistic risks exist, such as difficulties in underwriting insurance for shipping vessels, necessitating continued monitoring of the situation surrounding the strait. ## 7. Possibilities and Limitations of Alternative Routes While the strait is 34km at its narrowest point, actually navigable shipping lanes are limited to about 3km on each side (with alternating traffic and a central buffer zone of about 3km), and with limited alternative land transportation, it has become an extremely important strait for global energy supply. Existing pipeline alternative transportation capacity is limited, with effective unused capacity of only about 2.6 million barrels per day. Construction of new pipelines requires time and cost, with geopolitical constraints also present. Additionally, transportation via other sea routes using tankers would significantly increase transportation distance and costs, making complete substitution difficult. ## 8. Response Strategies of Various Countries While the possibility of long-term blockade is low, Iran's suggestions of blocking the Strait of Hormuz demonstrate retaliatory attack capabilities and intentions, forcing various countries to respond to this threat. The United States has deployed bases in the surrounding area and is prepared for military response in case of blockade. Asian countries including China and India are advancing securing alternative supply sources and enhancing strategic petroleum reserves from an energy security perspective. OPEC Plus countries maintain spare production capacity and prepare for response during supply shocks. Major importing countries including Japan are working to diversify supply sources and accelerate energy transition. ## 9. Future Points of Interest and Scenario Analysis Future points of interest include intensification of direct confrontation between Israel and Iran, changes in U.S. Middle East policy, progress in negotiations regarding the Iran nuclear agreement, and changes in the balance of power among regional powers. Scenarios include: 1) Threat of blockade only without execution (oil prices rise temporarily then stabilize), 2) Short-term partial blockade (oil prices range between $80-100), 3) Full-scale blockade (oil prices surge above $100). In any case, international response and securing alternative supplies will be crucial. ## 10. Conclusion and Market Implications The Strait of Hormuz holds irreplaceable importance in global energy supply, and its blockade risk represents one of the largest geopolitical risk factors in oil markets. While the possibility of actual blockade is currently low, risk premiums may rise at any time due to heightened geopolitical tensions. Market participants need to prepare for short-term price volatility while advancing supply source diversification and transition to alternative energy from a medium- to long-term energy security perspective. Additionally, it is important for governments and international organizations to strengthen crisis coordination systems and consider effective utilization methods for strategic petroleum reserves. EOF < /dev/null