How to Straighten Out the Hormuz Bottleneck

By Kenneth Medlock III

Mr. Medlock is a professor of economics and an expert in global energy.

Strategists long viewed the closure of the Strait of Hormuz as a low-probability event — much like that of the United States’ launching a war against Iran. Since combat ensued, we’ve seen energy prices climb and stock markets vacillate as nations such as India deal with cooking gas shortages, Americans reacquaint themselves with $4-a-gallon gasoline and the Federal Reserve wrestles with the prospect of resilient inflation.

Iran’s ability to effectively shutter oil’s most critical waterway has exposed a huge supply chain vulnerability, one that will have to be remedied by diversification in the production of oil and gas as well as the means and methods to transport them.

Notably, this is the third major supply chain disruption induced by global events in the last six years: first Covid, then the Russian invasion of Ukraine in 2022 and now the war in the Middle East. Although each was different, they all carried significant implications for energy, food and other goods, highlighting how intensely interconnected markets are.

Markets always find a way to deal with constraints — usually by settling at a much different, as in higher, price. In the near term, a full reopening of the strait is the simplest and most direct way to restore market balance. The Iranians, though, aren’t very interested in playing at the moment.

The strangling of the strait by a single government actor is forcing a huge rethink about the global energy distribution network. Right now, that means an “everything but the kitchen sink” approach.

We have seen a combination of tools being used or considered — releasing strategic oil stocks, reflagging vessels or allowing vessels to pass by agreement with Iran, government-backed insurance, naval escorts and military threats. We are also seeing expanded use of existing alternative routes that bypass the strait, such as the East-West pipeline across the Arabian Peninsula to the Red Sea.

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