Why is the strait important?<\/p>\n
Located between Iran’s southern coast and a peninsula shared by Oman and the United Arab Emirates, the strait is a tiny section of sea connecting the Persian Gulf to the Arabian Sea.<\/p>\n
It’s roughly 100 miles long and, at its narrowest, just 21 miles wide. It has two 2-mile-wide shipping lanes allowing for traffic in opposite directions, separated by a 2-mile-wide median.<\/p>\n
Yet the small size belies its importance.<\/p>\n
On any given day, an armada of some 80 tankers – laden with roughly 16 to 18 million barrels, or around a third of all oil transported by sea – traverses the waterway, delivering around 20% of the world’s crude and a large portion of its gas.<\/p>\n
Iranian tanker in the waters of the Strait of Hormuz on May 2, 2017 near Hormuz Island, Iran. (credit: Kaveh Kazemi\/Getty Images)<\/p>\n
But the strait’s importance goes beyond energy. It handles a significant amount of container traffic, with gulf countries being an important hub for containers bringing consumer goods from Asia to Europe.<\/p>\n
What’s the reaction to Iran’s warning?<\/p>\n
In effect, the strait has turned into a parking lot, with an almost complete cessation of ships going through, experts and marine traffic monitoring services say.<\/p>\n
“Tanker traffic has fallen by around 90%. And you have laden oil tankers still waiting outside of Hormuz and unwilling to cross to global oil markets,” said Noam Raydan, a maritime risk expert at the Washington Institute for Near East Policy.<\/p>\n
Shipping industry leaders also say roughly 10% of container ships operating around the world are stuck in the strait, while United Kingdom Maritime Trade Operations, which tracks security at sea, said in an advisory note Thursday that only two cargo vessels had passed in the 24 hours prior. That’s far below the 138 per day historical average, the UK group said, representing “a near-total temporary pause in routine commercial traffic.”<\/p>\n
On Saturday, Kuwait announced that it was curtailing oil production, joining several other Persian Gulf nations that have cut back or shut down operations. Kuwait lies on the western end of the gulf, so all its oil must pass through the Strait of Hormuz.<\/p>\n
Two days earlier, Danish shipping giant Maersk suspended new cargo bookings to parts of Saudi Arabia, the UAE, Kuwait, Qatar, Iraq, and many ports in Oman “until further notice.”<\/p>\n
Similar measures were taken by other shipping firms, including Hapag-Lloyd and Cosco Shipping. The Mediterranean Shipping Co. announced that it would levy fuel surcharges on shipping clients until April.<\/p>\n
In a statement, Maersk added that “exceptions will be made for critical foodstuff, medicine and other essential goods.”<\/p>\n
Although Iran has not made the closure official – the ban was announced by a Revolutionary Guard representative on national TV – its threats have proved to have teeth.<\/p>\n
Since US and Israeli strikes on Iran began February 28, at least nine vessels have been hit by projectiles<\/a>, according to Lloyd’s list on Thursday; most of the attacks – which killed three seafarers and two port workers – have been claimed by Iran.<\/p>\n Meanwhile, insurers are pulling coverage.<\/p>\n What’s the effect on prices?<\/p>\n On Saturday, the AAA auto club said the average price of a gallon of regular gas in the United States rose to $3.41. That was a 43-cent increase from a week earlier.<\/p>\n Price jumps have been more pronounced in California. The average price was $4.91, according to AAA, and motorists in some parts of the state found gas prices heading toward $6.<\/p>\n Costs are soaring already in the maritime transport industry, with leasing rates for tankers rising from $100,000 to $400,000 per day; some companies have mentioned going as high as $700,000, observers say.<\/p>\n Those increases have passed on to energy markets, with jet fuel being the most affected, potentially leading to a rise in ticket prices later in the year.<\/p>\n Meanwhile, the Brent price of oil, considered the most important price marker for the global oil trade, surged past $90 on Friday to $92.69. That was a 27% increase since the week before.<\/p>\n Even so, the reaction of the market has been relatively subdued, said David Butter, an energy expert on the Middle East at the Chatham House think tank.<\/p>\n “From the way prices have moved, there seems to be a reaction in the market based on an expectation that things are going to wind down in a few weeks,” Butter said. He added that the large amount of oil in storage, whether in land depots or the hundreds of tankers floating in the strait, have acted as a kind of backstop.<\/p>\n But it’s unclear how long that backstop can last.<\/p>\n And even if Persian Gulf nations resume production of oil and natural gas, getting fully back online can take weeks, experts say.<\/p>\n Robin Mills, chief executive of Qamar Energy, a consulting firm in Dubai, said there was a disconnect between the price and the geopolitical situation.<\/p>\n “Given what’s going on, it’s surprisingly relaxed. And I would say it’s incorrectly relaxed,” Mills said.<\/p>\nAn Aframax-sized oil tanker is seen in Bushehr coast, Iran, June 8, 2022 (credit: SADRA COMPANY\/WANA (WEST ASIA NEWS AGENCY)\/HANDOUT VIA REUTERS)<\/p>\n