The Strait of Hormuz and the Fragility of Energy Trade

The conflict in Iran, along with the threat posed to the Strait of Hormuz, has been a stark reminder that we remain very reliant upon maritime commerce. In a world of highways, railways, and aircraft shuttling goods from one location to another, shipping vessels continue to transport over half of international trade by value and almost 85% by volume.

Now, the first thing to stress here is that while there are lots of other potential choke points, the Strait of Hormuz is particularly crucial for global trade for the simple reason that there just isn’t really another way around it. The Strait of Hormuz is the only maritime route out of the oil-rich Persian Gulf into the rest of the world. There are a couple of other potential choke points that fit this bill. The Turkish Straits are the only way out of the Black Sea, for instance, and the Danish Straits are the only way out of the Baltic Sea. But neither of these is as important to international trade and especially energy markets as the Strait of Hormuz. Basically, every other big choke point has alternative sea routes. 

Now, since the de facto closure of the Strait of Hormuz, several affected countries have found creative workarounds to keep their oil and gas exports up. Iraq, for instance, has leaned more heavily on pipeline exports to Turkey. The UAE has exported more from the port of Fuera, which sits on the other side of the Strait of Hormuz. And the Saudis have been using their East-West pipeline to transport oil across the country to the Red Sea. But this is far from a perfect solution. None of these alternative routes has the capacity to fully replace trade through the strait. Otherwise, the world wouldn’t be in this mess. And things could get a lot worse if the Bab al Mandab, the next choke point on our list, were to be shut.

The Bab al Mandab and........

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