Commercial traffic through the Strait of Hormuz remains at a standstill as the conflict in Iran enters its sixth day, effectively halting a critical artery of global oil and gas supply. Hundreds of ships carrying oil and liquefied natural gas (LNG) are currently stalled off the coast of Iran, unable to navigate the narrow waterway amid escalating tensions between the U.S., Israel, Iran, and neighboring countries.
The disruption is already reverberating through energy markets. Global crude oil prices have surged nearly 35% since the conflict began last weekend, reaching $83 per barrel on Tuesday, up from just over $73 prior to the outbreak of hostilities. U.S. Crude oil has seen a similar increase. The national average gas price has risen nearly 35 cents per gallon since Sunday, reaching approximately $3.32 on Friday morning, according to GasBuddy, and AAA.
Qatar’s state-run energy firm earlier this week curtailed production of LNG and other energy products, exacerbating the supply squeeze. JPMorgan Chase commodities analysts reported Friday morning that commercial traffic through the Strait of Hormuz is “virtually nonexistent,” shifting the market’s focus from geopolitical risk to “tangible operational disruption.” The analysts noted that refinery shutdowns and export constraints are beginning to impair crude processing and regional supply flows.
Iraq has already reduced its oil production by 1.5 million barrels per day, and JPMorgan estimates a further 4 million barrels per day could be disrupted by the end of next week if the current situation persists. The Strait of Hormuz, a strategically vital passage between the Persian Gulf and the Gulf of Oman, handles approximately 20% of the world’s daily oil supply.
Iran’s Islamic Revolutionary Guard Corps (IRGC) has asserted control over the strait, warning that any vessels attempting passage will be targeted. A senior IRGC official reportedly stated Monday, “If anyone tries to pass, the heroes of the Revolutionary Guards and the regular navy will set those ships ablaze.” Reports emerged earlier in the week of an Iranian attack on a U.S. Oil tanker, with the IRGC claiming to have struck tankers from the U.K. And U.S. With missiles.
The closure of the strait is not achieved through a traditional naval blockade, but rather through a series of attacks on shipping and the declaration of the waterway as closed by Iranian authorities. Traffic through the strait had already decreased by 80% by Sunday, according to Lloyd’s List Intelligence.
While the U.S. Possesses oil stockpiles and some Gulf producers can redirect oil to alternative ports, these measures are insufficient to fully offset the shortfall caused by the disruption. Recent attacks have as well targeted energy infrastructure in Saudi Arabia, Qatar, and the UAE, raising concerns about the viability of alternative routes. U.S. Natural gas prices have also jumped more than 5% on Friday, with wholesale gas prices rising by 2%.
The IRGC’s claim of “complete control” over the Strait of Hormuz remains unchallenged by any independent verification. As of Friday, no international naval force has attempted to challenge Iran’s control of the waterway.
