The Impact Of The Closure Of The Strait Of Hormuz On Global Trade

Why is the Strait of Hormuz Irreplaceable as a "Choke Point"? - The Strategic Global Trade Importance of the Strait of Hormuz

To understand the devastating impact of the closure of the Strait of Hormuz on global trade, it is essential to first clarify its irreplaceable geographical and energy strategic value. This narrow waterway between Iran and Oman is approximately 150 kilometers long from east to west, and only 33 kilometers wide at its narrowest point from north to south. The near-shore waters are generally less than 25 meters deep, with only deep-water channels navigable by giant oil tankers. Under the traffic separation scheme established by the International Maritime Organization, ships entering and leaving the port use separate lanes, with each main channel less than 3 kilometers wide and only a 3-kilometer buffer zone in the middle. This narrow terrain makes it extremely easy to control, and also makes it the world's most "vulnerable" energy lifeline.

More importantly, the Strait of Hormuz is the only outlet from the Persian Gulf to the outside world, with no natural alternative waterways. This "one-man defense" geographical position determines its irreplaceable role in global energy transportation. The Gulf region holds nearly 60% of the world's oil reserves and 40% of its natural gas reserves. Major Middle Eastern oil-producing countries such as Saudi Arabia, Iraq, Qatar, and the UAE rely almost entirely on this strait for their crude oil and natural gas exports.

Data shows that approximately 20 million barrels of crude oil and refined petroleum products pass through the Strait of Hormuz daily, equivalent to nearly 20% of global oil supply and accounting for more than a quarter of global oil transportation. Qatar's liquefied natural gas (LNG) is almost entirely transported through this strait, accounting for nearly 20% of global LNG trade. Furthermore, about one-third of global fertilizer exports and a significant proportion of agricultural and manufacturing raw materials, such as sulfur and naphtha, are transported through this strait to destinations worldwide. Its passage directly impacts the stability of global supply chains.

From a geopolitical perspective, Iran, located on the northern shore of the strait, can effectively control the shipping lanes by leveraging the coastal terrain. This geographical advantage gives it significant leverage in regional power struggles. Saudi Arabia transports approximately 5.5 million barrels of crude oil daily through the Strait of Hormuz, Iran exports about 1.7 million barrels per day, and Qatar, as one of the world's top three exporters of liquefied natural gas, relies entirely on the right of way through the Strait of Hormuz for its energy exports. If the strait is blocked, these countries' economies will suffer a fatal blow, which will then quickly spread to the global market.

Historically, every disturbance in the Strait of Hormuz has triggered severe shocks in the global energy market. During the Iran-Iraq War, Iran threatened to block the Strait of Hormuz three times as a strategic deterrent. The "ship attacks" from 1984 to 1988 resulted in damage to nearly 340 ships, the deaths of 116 civilians and naval personnel, and significant fluctuations in international oil prices. The current de facto closure caused by the US-Israel-Iran conflict far exceeds the scale and impact of previous closures, becoming the most serious maritime energy transport crisis since World War II.

The energy market bears the brunt: oil prices soar, and natural gas supply is in crisis.

The most direct and severe impact of the Strait of Hormuz closure is first and foremost on the global energy market. With a precipitous drop in traffic through the Strait of Hormuz, global oil and gas supply has been severely impacted, triggering a surge in energy prices and sending the first shockwaves through global trade.

Data from Lloyds of London Ship Information shows that only 77 ships passed through the Strait of Hormuz between March 1st and 13th, compared to 1,229 in the same period in 2025, representing a 93.7% drop in traffic. Even more alarming, data from maritime data analytics firm Windward on March 15th showed no ships navigating the strait that day, the first such occurrence since the outbreak of hostilities. Before the conflict, an average of 77 ships passed through the strait daily.

This sharp contraction in energy supply directly drove up oil prices. After Iran imposed a closure on the strait, Brent crude futures jumped 13% to $82 per barrel in a single day, subsequently testing $100 per barrel multiple times and maintaining high levels of volatility. The International Energy Agency (IEA) states that the global oil market is facing the most severe supply disruption in history. Since the end of February, oil shipments through the Strait of Hormuz have fallen to less than 10% of pre-war levels, causing a combined reduction of millions of barrels of oil production in Iraq, Kuwait, the UAE, and Saudi Arabia over a period of just over a week. As of March 11, oil-producing countries in the region had collectively reduced production by at least 10 million barrels per day, equivalent to 10% of global oil supply.

The crisis in the liquefied natural gas (LNG) market is equally severe. Qatar, one of the world's largest LNG exporters, transports almost all of its LNG through the Strait of Hormuz, accounting for approximately 20% of global supply. The closure of the strait forced a halt to LNG exports from Qatar and the UAE, leading to a global LNG supply shortage and a sharp price increase. Europe relies on Qatar for about 15% of its natural gas supply, and the surge in gas prices has further exacerbated Europe's already fragile energy crisis, forcing some European countries to restart coal-fired power plants, violating their carbon neutrality commitments.

The soaring energy prices not only affect the costs of energy-importing countries but also impact the global energy trade landscape. The Gulf oil-producing countries are highly dependent on their oil economies. A closure of the Strait of Hormuz would prevent the export of crude oil, directly impacting their economic development. JPMorgan Chase analysis points out that if the Strait of Hormuz were completely closed, Middle Eastern oil-producing countries would be forced to halt production after 25 days of continuous operation. This would directly disrupt their crude oil production, leading to stagnation and consequently affecting their foreign exchange earnings and international payment capacity.

For energy-importing countries, especially Asian nations heavily reliant on Middle Eastern crude oil, the impact would be even more direct. Countries like Japan and South Korea rely on imports from the Middle East for over 70% of their oil. A closure of the Strait would significantly increase their import costs, potentially triggering imported inflation and hindering economic growth. Japan announced on March 16th the release of 80 million barrels of strategic petroleum reserves, equivalent to 45 days of its needs-its largest release since 1978-to alleviate energy supply pressures. As one of the world's largest energy importers, China, while diversifying its energy import channels in recent years, still relies heavily on the Middle East for a significant proportion of its crude oil and natural gas. A closure of the Strait would increase China's energy import costs, posing a challenge to its energy security.

Shipping Industry in Crisis: Soaring Costs, Disrupted Routes

The closure of the Strait of Hormuz has dealt a devastating blow to the global shipping industry. Increased security risks, a collapsing insurance system, and forced route adjustments have led to soaring global shipping costs and a significant drop in transport efficiency, further hindering the normal operation of global trade.

The surge in security risks is the primary problem facing the shipping industry. Following the escalation of the US-Iran military conflict, the security situation in the Strait of Hormuz has deteriorated rapidly. Data from the UK's Office for Maritime Trade Operations shows that since early March, 20 merchant ships, including nine oil tankers, have been attacked or struck by mines in the area. Faced with the threats of missiles, drones, and mines, legitimate shipping companies simply dare not take the risk. Iran's deployed Shahd-136 suicide drones, using civilian components such as wooden propellers and motorcycle engines, can effectively evade radar detection, costing only $20,000 to $50,000. In contrast, the Patriot interceptor missiles deployed by the US and Israel cost approximately $4 million each. This asymmetric tactic of "high risk, low reward" poses a significant threat to shipping safety.

The escalating security risks have directly led to a "meltdown" in the global shipping insurance system. Major international insurance institutions have cancelled war risk coverage in the Persian Gulf, with rates skyrocketing from approximately 0.25% before the conflict to 1%-3%, requiring renewal every seven days. For a $200 million oil tanker, the one-way premium could soar from $250,000 to $6 million, making the costs unaffordable. Lloyd's of London has stopped providing war risk insurance to Western merchant ships in the Persian Gulf, with rates even surging to over 5% at one point, further exacerbating the shipping industry's predicament.

Under the dual pressures of security and cost, global shipping giants have taken hedging actions. Maersk Line (Denmark), Mediterranean Shipping Company (Switzerland), CMA CGM (France), and Hapag-Lloyd (Germany) have all recently announced the suspension or cessation of routes through the Strait of Hormuz, instructing their vessels to proceed to designated safe havens or choose to circumnavigate the Cape of Good Hope.

While circumnavigating the Cape of Good Hope avoids the security risks of the Strait of Hormuz, it significantly increases shipping costs and transit time. Calculations indicate that tankers circumnavigating the Cape of Good Hope have increased voyage distances by 40%, extending transit time by 10 to 15 days. Very Large Crude Carrier (VLCC) freight rates have exceeded $53,000 per day, with daily charter rates for VLCCs on the Middle East-China route reaching as high as $470,000 per day, several times higher than before the conflict. Furthermore, the circumnavigation has increased fuel consumption, further driving up shipping costs.

It is noteworthy that while the Strait of Hormuz has not been formally closed, the rules of passage have been rewritten by Iran. In his first statement since taking office on March 12, Iran's Supreme Leader Mojtaba Khamenei stated that Iran would continue to use the tactic of blocking the Strait of Hormuz. Simultaneously, the Iranian Foreign Ministry indicated that only vessels from certain countries would be allowed passage, creating a "controlled release" model, with transit increasingly reliant on political understanding with Tehran.

Under this model, a small number of permitted vessels have abandoned conventional routes, instead sailing close to the Iranian coastline to facilitate Iranian verification of vessel ownership and cargo. The vessels still risking their lives to navigate the Strait of Hormuz are almost entirely so-called "shadow fleets." These ships are mostly old, registered in Liberia or Panama, with ownership hidden through multiple shell companies, and often lack proper commercial insurance. They operate in a gray area, exploiting "political understandings" with Iran to obtain passage permits, pursuing exorbitant profits from soaring freight rates amidst extremely high risks. The order of legitimate shipping has collapsed, and the Strait of Hormuz has become a stage for these "shadow fleets" to risk their lives for profit.

The chaos in the shipping industry has also exacerbated port congestion worldwide. A large number of ships detouring need to stop at ports in Africa and the Red Sea for resupply, causing a surge in throughput and severe congestion at these ports. Meanwhile, ports in the Middle East are experiencing cargo backlogs due to the inability to handle goods normally, further impacting the efficiency of global trade.

Chain Reaction: Manufacturing Under Pressure, Global Trade Landscape Changing

The energy and shipping crisis triggered by the closure of the Strait of Hormuz is spreading through the supply chain to global manufacturing and various trade sectors, exacerbating the risk of global supply chain disruptions. Manufacturing industries worldwide are facing soaring costs and production stagnation, and the global trade landscape is undergoing profound changes.

The chemical industry is one of the hardest hit sectors. Oil and natural gas are core raw materials for the chemical industry. Soaring energy prices and supply disruptions have led to a significant increase in production costs for chemical companies, forcing some to reduce production or shut down. For example, the supply of key chemical raw materials such as methanol is disrupted, leading to raw material shortages and production constraints in downstream industries such as plastics, rubber, and coatings. Simultaneously, disruptions to the transportation of chemical products such as sulfur and naphtha have further exacerbated the difficulties faced by the chemical industry.

The automotive industry has also been significantly impacted. The closure of the Strait of Hormuz has increased energy and logistics costs for automakers, while also exacerbating the risk of parts shortages, affecting their ability to produce in sufficient quantities and deliver on time. Major global automakers have lowered their production plans, and some have even suspended production of certain models. Furthermore, the production of auto parts such as tires relies on petrochemical products. Rising raw material prices have further increased automobile production costs, leading to higher car prices and suppressing consumer demand.

The agricultural sector also faces severe challenges. Fertilizer production is highly dependent on natural gas, with approximately one-third of global fertilizer exports transported through the Strait of Hormuz. The closure of the strait has caused delays and soaring prices for fertilizer shipments, posing a threat to spring planting in the Northern Hemisphere. Simultaneously, rising fuel costs have increased the costs of irrigation, fertilization, and harvesting in agricultural production, further pushing up food prices. The UN Food and Agriculture Organization (FAO) has warned that rising fertilizer and fuel costs could exacerbate the global food crisis, particularly in developing countries with high dependence on food imports, where food security will face even greater challenges.

The metals industry has also been impacted. The Strait of Hormuz is a crucial shipping route for major aluminum-producing countries in the Middle East to export metals and import raw materials. The closure has raised concerns about disruptions to bauxite and alumina shipments, further driving up aluminum prices. In addition, the production and transportation of other metals such as copper and zinc have been affected to varying degrees, and rising metal prices have further increased production costs in the manufacturing sector.

Besides manufacturing, the service sector has also been affected. The aviation industry has been significantly impacted by rising fuel prices, leading to increased operating costs. Many airlines have raised ticket prices and reduced flight frequencies, disrupting global travel and business. The tourism industry has also experienced a decline in demand due to reduced flights and increased travel costs, particularly in the Middle East, where the situation has brought tourism to a near standstill.

Disruptions to supply chains have also altered the regional landscape of global trade. Countries previously reliant on Middle Eastern energy and raw materials are now forced to accelerate energy import diversification and seek alternative supply channels, driving a restructuring of the global energy trade landscape. Simultaneously, some companies, seeking to mitigate shipping risks and rising costs, may adjust their supply chain layouts, relocating production bases closer to energy sources and markets, further strengthening the regionalization of global supply chains.

Common Global Challenges: Escalating Inflation and Geopolitical Competition

The closure of the Strait of Hormuz has not only caused direct economic losses to global trade but has also triggered a series of global challenges, including escalating inflationary pressures, intensified geopolitical competition, and the plight of developing countries. These intertwined challenges further exacerbate the uncertainty of global trade.

Easing global inflationary pressures are one of the most direct challenges. Soaring energy prices will directly drive up the prices of energy products such as refined oil and electricity, which will then be transmitted through the industrial chain to various consumer goods, leading to a rise in global price levels. According to the International Monetary Fund, if the Strait of Hormuz remains closed, the global inflation rate may rise by 2-3 percentage points, especially in countries with high energy import dependence, where inflationary pressures will be more pronounced. Increased inflation will reduce household purchasing power, increase the risk of social instability, and also limit the monetary policy space of central banks, affecting the global economic recovery process.

The escalation of geopolitical competition further complicates the crisis. The United States attempted to form a "Hormuz Coalition" to safeguard the passage through the Strait, but few responded. Since March, the United States has called on allies such as the United Kingdom, France, and South Korea to send warships to form a "coalition of escort," but France explicitly refused, and Germany and Australia also adopted a cautious attitude. The United Kingdom only stated that it would explore solutions without explicitly committing to sending warships. While Gulf states such as Saudi Arabia and the United Arab Emirates rely on US military protection, they have publicly refused to provide bases for US attacks on Iran, avoiding direct conflict.

The United States faces a strategic dilemma: militarily, it can destroy the Iranian navy, but cannot quickly eliminate the "psychological blockade"; politically, it faces the embarrassment of insufficient cooperation from its allies. Iran, on the other hand, has seized the initiative in the Straits of Hormuz using low-cost drone swarm tactics, using the right of way as diplomatic leverage to demand that Europe and Gulf states expel the US and Israeli ambassadors in exchange for passage. This escalation of geopolitical competition not only fails to resolve the current Straits crisis but may also lead to further escalation of the conflict, bringing greater uncertainty to global trade.

Developing countries are among the biggest victims of this crisis. On the one hand, rising energy costs will squeeze corporate profits, causing a severe blow to global stock markets, potentially leading to a massive sell-off of risky assets, and emerging market countries facing capital outflows, currency devaluation, and the risk of foreign debt defaults. On the other hand, the currencies of energy-dependent Asian developing countries may depreciate significantly, and the disruption of the petrodollar cycle will lead to a restructuring of global foreign exchange reserves. Furthermore, soaring raw material costs in industries such as petrochemicals, plastics, fertilizers, and automobiles, coupled with production constraints and shrinking profits, will further exacerbate the economic plight of developing countries and widen the global wealth gap.

The fragility of global supply chains has also been fully exposed in this crisis. For a long time, global trade has been highly dependent on a few key shipping lanes and energy supply locations. The closure of the Strait of Hormuz demonstrates that this highly concentrated supply chain layout is extremely vulnerable to geopolitical conflicts, and a crisis could deal a fatal blow to global trade. How to build a more diversified and resilient global supply chain has become a crucial issue facing all countries.

Furthermore, the closure of the strait also poses challenges to global climate governance. To cope with energy shortages, some countries have had to restart coal-fired power plants, increasing coal consumption, which will lead to increased carbon emissions, violating the common goal of global carbon neutrality and impacting the progress of global climate governance.

The Path to Response: Multi-Party Mediation and Seeking Win-Win Solutions

Faced with the global trade crisis caused by the closure of the Strait of Hormuz, the power of a single country is insufficient to resolve the issue. The international community needs to work together, seeking win-win solutions through diplomatic mediation and diversified cooperation to mitigate the impact of the crisis.

Diplomatic mediation is key to resolving the current crisis. The United Nations, China, Russia, the European Union, and other parties should actively play a mediating role, pushing the US, Israel, and Iran back to the negotiating table to resolve their differences through peaceful negotiations and gradually restore normal passage through the Strait of Hormuz. Iran's legitimate security concerns should be taken seriously, and the United States and Israel should cease military strikes to avoid further escalation of the conflict. Simultaneously, the international community should promote the establishment of a security guarantee mechanism for the Strait of Hormuz to ensure the safety and unimpeded flow of water and maintain the stability of global energy trade.

Accelerating the diversification of energy imports is a crucial measure for all countries to cope with the crisis. For energy-importing countries, it is necessary to further expand energy import channels, reduce dependence on Middle Eastern energy, strengthen energy cooperation with Russia, Central Asia, the Americas, and other regions, and build a diversified energy supply system. At the same time, efforts should be increased to develop and utilize renewable energy, raising the proportion of new energy in energy consumption and reducing dependence on fossil fuels, fundamentally improving energy security.

Optimizing the global supply chain layout and enhancing its resilience are essential. Countries and enterprises should learn from the lessons of this crisis, avoiding over-concentration of supply chains, and improving their resilience by dispersing production bases and establishing diversified logistics channels. Furthermore, international supply chain cooperation should be strengthened to promote coordinated development and jointly address various unforeseen crises.

Strengthening international shipping cooperation is crucial to reducing shipping risks and costs. All countries should strengthen cooperation in areas such as shipping safety, maritime rescue, and anti-piracy to jointly maintain security and order in the Strait of Hormuz and surrounding waters. Meanwhile, shipping companies should enhance cooperation, optimize route planning, improve transportation efficiency, and reduce shipping costs. Insurance institutions should introduce more reasonable insurance products to alleviate the insurance burden on shipping companies and contribute to the recovery of the shipping industry.

Furthermore, the international community should increase its support for developing countries to help them cope with the energy crisis and economic difficulties. By providing financial assistance, technical support, and debt relief, the international community can alleviate the energy import pressure and debt burden of developing countries and promote balanced global economic development.

Conclusion: Beware of a Global Trade Crisis Triggered by a "Choke Point"

The de facto closure of the Strait of Hormuz is not merely a regional geopolitical conflict, but a global trade crisis. It profoundly exposes the fragility of the global energy supply chain and highlights the devastating impact of geopolitical conflicts on global trade. Soaring energy prices, skyrocketing shipping costs, supply chain disruptions, and escalating inflationary pressures are intertwined, testing the response capabilities of countries worldwide.

Currently, the global economy is at a critical juncture of recovery, and the closure of the Strait of Hormuz undoubtedly casts a shadow over this recovery. If the crisis continues to escalate, it will not only lead to a contraction in global trade and a slowdown in economic growth, but may also trigger wider geopolitical conflicts and social unrest.

Resolving the Strait of Hormuz crisis requires the international community to uphold the principles of peace, cooperation, and mutual benefit, resolving differences through diplomatic negotiations and enhancing resilience through diversified cooperation. Only in this way can normal passage through the Strait of Hormuz be gradually restored, the global trade crisis alleviated, and the global economy promoted in a stable, healthy, and sustainable direction.

In the future, the strategic position of the Strait of Hormuz may change with shifts in geopolitical circumstances and adjustments in the global energy structure, but its importance as a global energy "choke point" is unlikely to be replaced in the short term. Countries worldwide should seize this opportunity to accelerate energy transition and supply chain upgrades, build a safer, more stable, and diversified global trade system, and avoid falling into a global trade crisis triggered by a "choke point blockage" again.

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