The Strait of Hormuz Is Almost Shut Down — Here's What That Means for the World

The countries most directly exposed are not the ones making the most headlines. South Korea and Japan together import roughly 70 percent of their oil through the Strait of Hormuz. India sources about 65 percent of its crude via the same route. European nations, though geographically distant, are downstream of an LNG market that relies heavily on Qatari exports that transit the strait. Qatar, the world's largest LNG exporter, has not yet curtailed shipments, but operators are adding massive war-risk premiums to voyage insurance, costs that will eventually feed into utility bills from Tokyo to Rotterdam.

“South Korea and Japan together import roughly 70 percent of their oil through the Strait of Hormuz.”

The alternative routes are inadequate. Saudi Arabia's East-West pipeline can move about 5 million barrels per day overland to the Red Sea, bypassing the strait. The UAE's Abu Dhabi Crude Oil Pipeline has capacity for roughly 1.5 million barrels daily. Together, those two corridors can replace perhaps 30 percent of normal Hormuz throughput — assuming the pipelines themselves aren't targeted, an assumption no longer guaranteed. The International Energy Agency coordinated a release of strategic petroleum reserves from member nations last week, the fourth such coordinated release since 2022, but reserve drawdowns are a weeks-long buffer, not a structural solution.

Iran's leverage over the strait is not unlimited. Its navy and the IRGC naval branch are capable of harassing, mining, and seizing vessels, but a sustained physical blockade of a 21-mile choke point against a US carrier group is a different military proposition. The USS Gerald R. Ford carrier strike group, reinforced by two additional destroyer squadrons, is currently positioned in the Gulf of Oman. American naval planners have been drilling strait-reopening scenarios since the 1980s. The challenge is political rather than purely military: forced reopening would require direct engagement with Iranian forces, with all the escalation risk that entails.

The economic ripple is broader than the oil price. Container shipping from Asian manufacturers has been rerouted via the Cape of Good Hope for the past three weeks, adding 10 to 14 days to transit times and roughly $2,000 to $3,500 per twenty-foot equivalent container in additional fuel and time costs. Automakers in Germany and South Korea reported shortages of specific electronic components routed through Gulf logistics hubs. Airfreight rates for time-sensitive cargo between Asia and Europe climbed 40 percent in the past two weeks as companies switched modes.

What's counterintuitive: the biggest immediate economic beneficiary of the shutdown is not Saudi Arabia or Russia, the obvious candidates, but rather domestic US shale producers. The Permian Basin, Eagle Ford, and Bakken formations are all accessible without any Hormuz exposure, and with oil above $100, the economics of previously marginal wells have flipped dramatically. US rig counts rose 18 percent in the first three weeks of March. American oil production is on pace to hit a new monthly record by May.

None of that helps Asian refinery customers over the next 90 days. If diplomacy fails this week and the strait remains closed through spring and into summer, the compound effects — inflation, manufacturing slowdowns, and energy rationing in import-dependent economies — will be a story larger than the war itself.