Iran and the Straight of Hormuz in an Energy context
People keep talking about the Strait of Hormuz like it’s a door.
Open = normal Closed = chaos
That framing is already wrong.
Nothing has to actually close. It just has to stop feeling boring.
All you that’s needed is a tiny bit of friction. A little uncertainty. Insurance guys starting to pay attention, vessel operators starting to add some ‘just in case’ buffers and tankers slowing down because nobody wants to be the guy who ends up in the case study.
That’s it. That’s the whole mechanism in a nutshell.
On maps, Hormuz looks wide, but actually shipping gets squeezed into a couple of narrow lanes because efficiency is great. Global energy flows through something that functionally resembles a busy Costco checkout, and we act shocked when the line backs up.
Roughly 20 million barrels a day go through there, all day every day. Plus LNG. Especially LNG. Both oil and LNG go predominantly to Asia
Everyone loves the headline: “Iran closes Hormuz”, don’t they ?
Sounds decisive, it’s also mostly nonsense.
Closing Hormuz would hurt Iran fast and hard. Their own oil goes through there too and so do a lot of imports they actually need. Also, minor geographical footnote: the shipping lanes aren’t even in Iranian waters. They’re in Omani waters.
So, the real lever isn’t closure. It’s irritation.
No war needed. No blockade needed. Whispers, talks and rumours of a potential ‘closure’ or disruption event are entirely sufficient.
Problem is, commodity markets are terrible at pricing the ‘weird but not catastrophic’, situation, especially in the first few days.
Oil does have buffers (i.e. inventories, pipelines, emergency releases), but those buy time only. LNG, different story. If it doesn’t move to where it’s supposed to be, it just sits there being expensive and useless.
The moment it becomes interesting, everything else becomes more expensive. So no, the Strait doesn’t need to close.
It just needs to wobble.
Markets will panic. Then overpay. Then argue on TV about whether it was “already priced in.”
They do this every time. Most analysts still act surprised every time.
(Source : S&P sub-service)