In response to the U.S. airstrike on Iran's nuclear facilities, the Iranian parliament approved the blockade of the Strait of Hormuz, raising the threat level. However, as Iran and Israel followed a ceasefire process, this threat was once again limited to just rhetoric. The Strait of Hormuz is a key passage for about 20-30% of the world's crude oil and liquefied natural gas (LNG); if it is blocked, the prices of oil and LNG would soar, impacting the entire globe.
Iran has previously threatened to block the Strait of Hormuz during times of conflict. However, it has never actually followed through with a blockade. Blocking the strait would also harm Iran's allies, and China, a major importer of Iranian oil, could respond negatively. Since most trade is conducted via the sea, Iran would also suffer significant damage. Nevertheless, even without a blockade, creating uncertainty or merely slowing down the vessels passing through the strait can affect oil prices and shipping rates.
The threat of an Iranian blockade of the Strait of Hormuz peaked during the 1984 war with Iraq. At that time, Iran posed threats by attaching mines to vessels passing through the Strait. Approximately 540 commercial ships were affected during that period.
Afterwards, as the international community imposed sanctions on Iran's nuclear program, Iran threatened to block the Strait of Hormuz while carrying out large-scale military drills in the vicinity or seizing vessels. However, it has never fully implemented a complete blockade.
For this reason, the U.S. has viewed the possibility of blocking the strait as minimal from the start. J.D. Vance, the U.S. Vice President, noted in an interview with NBC, "A blockade is a suicidal act for the Iranians," adding, "The entire Iranian economy is reliant on the Strait of Hormuz, so why would they do that?"
Even if Iran does not block the Strait of Hormuz, the mere increase in the possibility of a blockade triggers a sensitive response in oil prices. Shortly after Israel's airstrike on Iran, the spot price of Dubai crude surged from $68.57 per barrel to $76.84 on the 20th.
The Strait of Hormuz averages about 55 km in width, but the depth sufficient for large crude carriers (VLCC) is close to the Iranian coastline. Oil produced in countries like Iraq and Saudi Arabia must also pass through this strait, meaning that 99% of the Middle Eastern oil imported domestically traverses the Strait of Hormuz. Last year, the domestic oil import volume was 1 billion 29 million 420 thousand barrels, of which 71.5% was accounted for by Middle Eastern oil.
As military tensions in the Strait of Hormuz escalate, shipping insurance premiums increase significantly, and maritime freight rates also rise. The charter rate for VLCCs skyrocketed from an average of $32,302 on the 13th to $53,449 on the 20th, marking a 66% surge.