Oil Won't Stop Rising Until Hormuz Is Safe Again

One chokepoint. 17 million barrels a day. And no real detour.

The World's Most Dangerous Waterway

At its narrowest, the Strait of Hormuz is just 33 kilometers wide—barely wider than the English Channel at Dover. Yet roughly 20% of all seaborne oil passes through it daily, flowing from Saudi Arabia, Iraq, Kuwait, the UAE, and Iran toward refineries in Asia and Europe. There is no comparable alternative route that can absorb this volume.

Tensions around the strait have been climbing for months. US-Iran nuclear talks remain deadlocked. Houthi attacks on Red Sea shipping have already forced major carriers to reroute around the Cape of Good Hope, adding weeks and hundreds of thousands of dollars to each voyage. Iran has threatened to close Hormuz before—most recently in 2019, when tankers were struck by mines in the Gulf of Oman. Markets didn't fully believe it then. They're less certain now.

Why Prices Keep Climbing

Brent crude is currently trading around $85 per barrel. Analysts at major energy banks estimate that a credible disruption—not even a full closure, just sustained uncertainty about safe passage—could push prices toward $120 to $150 per barrel within weeks. The reference point everyone cites: March 2022, when Russian oil was suddenly sanctioned off global markets and Brent briefly touched $130.

The arithmetic of alternatives is brutal. Saudi Arabia has overland pipeline capacity to bypass the strait, routing crude to the Red Sea port of Yanbu. Maximum throughput: roughly 5 million barrels per day—less than 30% of current Hormuz traffic. The rest has nowhere else to go. This structural bottleneck is exactly why oil markets react so sharply to even rhetorical threats from Tehran.

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Who Wins, Who Loses

The impact isn't felt equally. For airlines, every $10 per barrel increase in jet fuel costs translates to billions in additional annual expenses across the industry. Delta, United, and IAG have all flagged fuel hedging strategies as a top priority this year—but hedges only buy time. Consumers end up paying through higher fares.

For US shale producers, higher prices are a windfall. At $85, many Permian Basin operations are already printing cash. At $120, the economics of new drilling become irresistible, potentially accelerating domestic production. This is one reason Washington has a complicated relationship with Middle East stability: a degree of tension keeps American energy competitive.

Shipping and LNG sectors stand to benefit from a different angle. Prolonged Hormuz anxiety would accelerate demand for LNG infrastructure—pipelines, terminals, and the tankers to serve them—as governments scramble to diversify away from Gulf dependence. South Korean and Japanese shipyards, already running near capacity on LNG carrier orders, would see their order books extend further.

For consumers in energy-importing economies—Europe, Japan, South Korea, India—the calculus is straightforward and painful. Higher oil means higher petrol, higher electricity (in countries with oil-linked power generation), higher food prices (fertilizer and transport costs), and renewed inflation pressure at a moment when central banks are only beginning to ease.

The Strategic Reserve Question

Governments aren't entirely helpless. The IEA's member countries collectively hold strategic petroleum reserves equivalent to roughly 1.4 billion barrels—about 50 days of global consumption. In 2022, IEA coordinated the largest-ever release of strategic reserves in response to Russia's invasion of Ukraine, temporarily calming markets.

But strategic reserves are a bridge, not a solution. They buy time for diplomatic resolution or supply rerouting. If a Hormuz disruption lasted three months or more, the buffer would look far less reassuring. And replenishing reserves after a drawdown takes time and money—at elevated prices.

The deeper issue is structural dependency that decades of energy policy haven't resolved. Despite the renewable energy buildout, oil remains the backbone of global transport. The energy transition is real, but it's moving at a pace measured in decades, not months. In the interim, the world remains hostage to a 33-kilometer stretch of water.