Israel-Iran War: The significance of Strait of Hormuz that Iran threatens to block after US strikes – explained

Israel-Iran War: The United States of America's strike on three key nuclear facilities in Iran on Saturday night has put the spotlight back on the Strait of Hormuz – the strategically significant shipping pathway that carries about a fifth of the world’s oil.

Iran has long threatened to choke the Strait of Hormuz –  a chokepoint between Iran and Oman. Iran's Supreme National Security Council must make the final decision on whether to close the Strait of Hormuz, Iran's Press TV said on Sunday, after parliament reportedly approved the ‘closure’ proposal. Iranian lawmaker and Revolutionary Guards Commander Esmail Kosari told journalists that doing so is on the agenda and ‘will be done whenever necessary.’

Earlier, soon after the military strikes by its long-time foe, the United States, Hossein Shariatmadari, the Iranian Supreme Leader Ali Khamenei's representative, reportedly called for immediate retaliation, including closing the Strait of Hormuz to American, British, German, and French ships.

Where is the Strait of Hormuz?

The Strait of Hormuz is a strait between the Persian Gulf and the Gulf of Oman. It provides the only sea passage from the Persian Gulf to the open ocean and is one of the world's most strategically important choke points. The Strait serves as the primary export route for Gulf producers such as Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait.

This Strait allows about 20 per cent of the world’s daily oil consumption—around 20 million barrels—to pass through it.

The Strait has been at the heart of regional tensions for decades, and recently, attacks have occurred near it and targeted alternative routes for oil bypassing Hormuz, news agency Reuters said.

Recently, President Trump blamed Iran for the June 12 attacks on two oil tankers at the entrance to the Gulf despite Tehran’s denials, stoking fears of a confrontation in the vital oil shipping route. On July 19 Iran’s Revolutionary Guards said they had captured a British-flagged oil tanker in the Gulf after Britain seized an Iranian vessel on July 4.

At present, approximately 50 large oil tankers are attempting to navigate out of the Strait of Hormuz, according to the media reports. Iran's fresh threat after US strikes has raised concerns about how disruptive a conflict in the Gulf could be for the global oil trade.

Impact on India?

So what if Iran closes the Strait? How will it impact India? The Strait links the Persian Gulf to the Indian Ocean. Any blockade would drive the oil price up and cause inflation.

Over two-thirds of India's oil imports and nearly half of its liquefied natural gas (LNG) imports transit through the Strait of Hormuz. Of the 5.5 million barrels of oil India consumes every day, 1.5 million pass through the waterway.

“If Iran closes the Strait of Hormuz, India will definitely suffer. About 20 per cent of the world's crude oil and 25 per cent of the world's natural gas flow through these,” Foreign Affairs Expert Robinder Sachdev told news agency ANI.

India will suffer because oil prices will go up, inflation will rise, and there is an estimate that for every ten-dollar increase in the price of crude oil, india's GDP will suffer by 0.5 per cent, he said.

India's readiness?

Union Minister Hardeep Puri said earlier this week that India plans to source crude oil from outside the Persian Gulf and to cut its own refined‑product exports, as a potential blockage of the Strait looms.

“We have enough diversified supplies of crude, and even if there were to be a disruption, we can source it from alternative suppliers,” Puri, the Union Minister of Petroleum and Natural Gas, told NDTV

“I don’t think this is something we are unduly worried about,” he added. Ample crude is available on the global market, so the concern is not supply but price, the Minister said.

India's Oil exports?

India is a net exporter of petroleum goods, with refiners such as Reliance Industries Ltd. and Nayara Energy shipping to countries such as the United Arab Emirates, Singapore, the US and Australia. The crisis could reduce those shipments if needed to maintain sufficient stockpiles at home.

India’s product exports have averaged 1.3 million barrels a day so far this year, with Reliance and Nayara dominating the industry with 82 per cent of shipments, Bloomberg reported.

Has the Strait ever been closed?

The Strait has never been closed, despite apprehensions that its closure in the past would disrupt the global oil supply.

Experts said that while there might be a temporary disruption in maritime traffic, Iran might refrain from choking the Strait of Hormuz, as it will affect its friends more than its enemies.

“There are three significant reasons why Iran might not actually do so, even while signalling that it might do so rhetorically. First, it will hurt Iran’s friend, China, the world's second-largest economy, and Iran’s largest trading partner. China, is the number one importer of oil, accounting for nearly three-quarters of its oil export,” Shweta Singh, who teaches at the Faculty of International Studies at the South Asian University, wrote in Mint recently. 

So China, will not like to see any disruption in its maritime oil shipments, and might actually use its economic leverage with Iran to prevent Iran from the closure of the narrow lane, she said

“Second, it will rupture Iran's relationship with Oman (which owns the southern half of the strait) and the Gulf Cooperation Council (GCC States). With Oman, careful crafting of a relationship has resulted in greater dependency for Iran on a wide range of issues,” Singh added.

Iran's two biggest oil export clients?

During the Iran–Iraq War in the 1980s, the two countries engaged in what is called the ' Tanker War'. Tehran targeted Kuwaiti and Saudi tankers, as Iraq retaliated with missile strikes.

The US launched Operation Earnest Will to protect Kuwaiti oil tankers from Iranian attacks during the Iran-Iraq War. It was a key part of the larger 'Tanker War' and involved the largest maritime convoy operation since World War II. This oil war led to a hike in prices across the world, but still, the Strait remained open.

“Third, domestically this might not work for the interest of the regime, as any economic hits or closure of its oil exporting terminal, will see a surge in prices, and fuel popular discontent, which might impact both regime stability, and reformist tendencies for Iranian President Masoud Pezeshkian,” Singh wrote.

Steven Schork, Schork Group principal and editor, told Bloomberg, that he does not think Iran will close the Strait of Hormuz because it would hurt India and China, two of their biggest oil export clients.

In 2011-2012, Iran again threatened to close the Strait in response to European and US sanctions against its oil exports and banking system. The then-Iranian Vice President Mohammad Reza Rahimi warned of a complete shutdown if oil sanctions were enforced. The Strait, however, was not closed.

Likewise, in 2019, when the US withdrew from the Iran nuclear deal and tensions soared, apprehensions of closure gripped the globe yet again. But despite severe escalation, the Strait remained functional.

(With agency inputs)