The selective closure of the Hormuz Strait by Iran has had tremendous effects on vital aspects of the global economy. Iran controls the passage of about 20 million barrels per day of crude oil, which accounts for 34% of global crude oil trade, with most of it directed towards Asian countries. Additionally, the strait sees about 20% of the total global gas trade, making it a crucial artery for essential materials needed for fertilizers used in food production.
If the closure of the strait persists, the number of people worldwide facing food shortages could reach nearly 7 billion, especially if the conflict escalates, according to economist Steve Keen. The strait also facilitates the passage of helium, which Gulf countries export to various nations, including South Korea, which sources 64.7% of its helium needs from Qatar, highlighting the strait's importance in the semiconductor industry.
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This indicates that the Hormuz Strait is a central hub in critical sectors such as energy, food, and advanced technology. The repercussions of a collapse in these sectors could extend far beyond the immediate effects of a closure lasting several months, potentially leading to a severe economic crisis.
Energy, food, and technology companies may struggle to cope with operational disruptions, which could force them to lay off workers and default on bank loans, thereby transferring the crisis to the banking system, which may become unable to cover its customers' savings and deposits.
Background & Context
Historically, Iran has faced Western sanctions that have harmed its vital sectors, leading to a significant decline in the Iranian currency. With Iran's closure of the Hormuz Strait, the United States was compelled to lift the ban on Iranian oil exports to compensate for market shortages, resulting in a drop in oil prices.
This shift in dynamics has made Iran aware that controlling the strait could disrupt U.S.-backed alliances, prompting Western nations to engage in direct negotiations with Iran for assurances regarding their energy shipments.
Impact & Consequences
Concerns are growing that the closure of the strait could lead to rising gasoline and food prices, negatively impacting the U.S. economy. Gasoline prices have surged by 30-50% over five weeks, increasing public discontent with the Trump administration.
The closure could also affect the advanced technology sector, which relies on essential helium, potentially leading to a massive economic shock in the United States.
Regional Significance
The importance of the Hormuz Strait is heightened in the context of regional conflicts, as Iranian control over the strait could lead to radical changes in international relations. Iran may push countries to adopt stances that serve its interests in dealings with the United States, thereby strengthening its position in the region.
Ultimately, control over the Hormuz Strait could become a strategic weapon in Iran's hands, enhancing its ability to deter any future threats.