The Strait of Hormuz: A Chokepoint in a World on Edge
“If your Majesty holds Hormuz, you hold the trade of all Persia, India and Arabia; for without the permission of Hormuz, no ship can navigate these seas.” These words were penned by Afonso de Albuquerque in 1515 in a letter to King Manuel I of Portugal. The monarch had tasked him with securing sea routes through the Indian Ocean and defending them against Arab and Ottoman ships.
Albuquerque successfully captured the island of Hormuz, controlling the strait between the Persian Gulf and the Indian Ocean. He dubbed it the “key to the Orient.” For over a century, Hormuz remained in Portuguese hands, guarded by the formidable Fortaleza de Nossa Senhora da Conceição, which was eventually seized in 1622 by a combined Persian and English force.
Albuquerque recognized that securing trade routes for Portugal didn’t require large land armies, but control over three key maritime chokepoints: the Bab el Mandeb, the Strait of Malacca and the Strait of Hormuz.
In Albuquerque’s time, Hormuz was a thriving and wealthy trading city. More than two centuries prior, the Venetian merchant Marco Polo had visited and described its riches.
Today, Hormuz is a barren, waterless island with a small population, its former wealth long faded.
Though, the strategic importance of the strait that bears its name remains.
The Strait’s Role in the Current Conflict
The Strait of Hormuz plays a critical role in the ongoing conflict between Israel and the US against Iran – and in supplying the world economy with oil and liquefied natural gas (LNG).
The conflict, now in its first week as of March 1st, 2026, shows no signs of de-escalation. The three main actors pursue differing, and sometimes ill-defined, objectives.
Israel aims to eliminate the existential threat posed by the Iranian regime. Iran, having lost control of its airspace and facing defensive challenges, is pursuing a strategy of expanding the conflict throughout the Gulf region and raising the costs for all parties involved, utilizing inexpensive Shahed drones against expensive Patriot systems.
The US strategy remains the most unclear. President Trump has not fully explained the reasons for the war to Congress or the public, citing goals ranging from eliminating Iran’s nuclear program and ballistic missile capabilities to regime change.
Economic Impacts: Oil Prices and Global Trade
The most immediate impact of the conflict on the global economy and financial markets is rising crude oil and natural gas prices. Even as not yet at 2022 levels (following Russia’s invasion of Ukraine), fears of higher energy prices increasing inflation and weakening the economy are causing market nervousness.
Approximately 20-30 percent of global oil and gas supplies are shipped through the Strait of Hormuz. As of March 1st, 2026, Iranian officials hinted at shutting down the strait.
Vessels crossing the strait are receiving very high frequency (VHF) transmissions from Iran’s Islamic Revolutionary Guard Corps (IRGC), stating “no ship is allowed to pass the Strait of Hormuz,” though Iran has not officially closed it. Several tanker owners have suspended oil and gas shipments through the strait.
Current Situation: A Near Standstill
Normally, around 300 to 400 tankers pass through the Strait of Hormuz each week. In the last seven days, only 58 tankers have made the passage into the Indian Ocean. The strait is effectively closed to tankers.
While Iranian Foreign Minister Abbas Araghchi stated the strait remains open to shipping, the IRGC has announced its closure. The primary issue is that insurance companies have declared the region high-risk, rendering standard annual policies invalid. Each passage now requires individual applications and additional insurance, with costs increasing up to twelvefold.
shipowners are waiting for clarity on the security situation. Approximately 150 tankers of varying sizes are currently anchored west and east of the Strait of Hormuz.
Production Cuts and Supply Concerns
Iraq has already reduced oil production by around 1.5 million barrels per day due to storage capacity issues. Kuwait is as well facing storage constraints, with production potentially halting within weeks. Qatar has also reduced LNG production following an Iranian drone attack.
Qatar’s Energy Minister, Saad al-Kaabi, warned that most Gulf producers could soon halt production, potentially driving oil prices to $150 per barrel.
Are There Alternatives?
Limited alternatives exist. Two pipelines offer a bypass: the Saudi East-West Pipeline with an export terminal in Yanbu on the Red Sea, and a pipeline in the UAE from Abu Dhabi to Fujairah on the Gulf of Oman. These pipelines have a combined capacity of approximately 5.7 million barrels per day, but this is insufficient to replace the Strait of Hormuz, which handles around 20 million barrels of oil and refined products daily.
The Red Sea route also presents risks, as tankers would require to pass through the Bab el Mandeb, potentially facing attacks from Houthi militias allied with Iran.
What’s Next? Key Indicators to Watch
Despite the current situation, immediate crisis is avoided due to substantial global oil reserves. Worldwide crude oil inventories currently total over 70 days of global consumption. China holds strategic reserves of over 1.2 billion barrels, enough for four months of consumption. Over 1.3 billion barrels of oil are currently stored on tankers worldwide.
For Europe, the loss of LNG supplies from Qatar is manageable, as the majority of its imports arrive from Norway (31%) and the US (26%).
However, the situation could rapidly deteriorate if the Strait remains closed for an extended period.
Critical Questions for the Coming Weeks
- How long will the Strait remain closed, either explicitly or implicitly?
- Will a “porous” passage regime emerge, allowing certain tankers (e.g., those destined for China or India) to pass while others are blocked?
- Will Iran target the production and export infrastructure of Gulf states, leading to sustained production outages?
The answers to these questions will become clear in the coming weeks, impacting oil and gas prices and potentially destabilizing financial markets.
The Trump Factor
Two key indicators to watch regarding the US response are gasoline prices and the upcoming midterm elections. The national average gasoline price in the US has risen to $3.32 per gallon, a level that is beginning to cause pain for consumers. Rising gasoline prices, combined with persistent inflation, are major concerns for American voters.
Betting markets are also shifting, indicating a growing likelihood of Democratic gains in the November elections. A rising gasoline price, combined with a stronger Democratic showing, would increase pressure on President Trump to seek a de-escalation and a resolution to the conflict.
FAQ
Q: How much oil passes through the Strait of Hormuz?
A: Approximately 20-30% of global oil and gas supplies.
Q: Has Iran officially closed the Strait of Hormuz?
A: Not officially, but the IRGC has issued warnings, and tanker traffic has significantly decreased.
Q: Are there alternative routes for oil shipments?
A: Limited alternatives exist via pipelines, but they cannot fully replace the Strait of Hormuz.
Q: What is the current oil price?
A: As of March 1st, 2026, Brent crude is trading at over $90 per barrel.
Q: What could cause the situation to worsen?
A: A prolonged closure of the Strait, attacks on Gulf infrastructure, or a lack of diplomatic resolution.
Pro Tip: Keep a close eye on futures curves for oil. A steepening curve suggests markets anticipate prolonged disruption.
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