Israel’s Strike Ignites Oil Crisis Fears: Will the Strait of Hormuz Shut?

Israel’s predawn strikes on Iran’s nuclear and military sites sent Brent crude soaring nearly 9% to $78 a barrel, with West Texas Intermediate climbing 9.4% to $74.44. The trigger? Fears arose that Iran, the world's seventh-largest oil producer, might retaliate by choking the Strait of Hormuz, a narrow chokepoint that transports a third of global seaborne oil.

Markets are pricing in a massive risk premium, with JPMorgan warning prices could hit $120 if the strait closes. Investors are rattled. Japan's Nikkei 225 experienced a 1.2% decline, while U.S. S&P 500 futures indicate a 1.5% decline at the opening. The world's energy supply is in a precarious state.

ALSO READ | Strait of Hormuz on Edge: Will Iran’s Move Ignite an Oil Crisis?

Iran’s Power Play: The Strait’s Strategic Chokehold

Iran’s perch on the northern edge of the Strait of Hormuz gives it leverage to disrupt 20% of global oil flows, impacting exports from Saudi Arabia, Kuwait, Iraq, and the UAE. Tehran has threatened to mine or block the strait before, though it’s never fully closed it, as 90% of its own 3.2 million barrels per day of oil exports rely on this route.

A blockade would devastate Iran’s economy, heavily dependent on China’s demand, but desperation could push Tehran to act. The U.S. could reopen the strait militarily, but at the cost of escalating the conflict.

Global Economies Brace: Inflation Looms Large

The oil price spike threatens to reignite inflation, already a headache for central banks. Europe, heavily reliant on Middle East oil, faces immediate pain, while China’s strategic reserves may cushion it for weeks. Stock markets are buckling; Asia’s indices slid, and Wall Street braces for a rough open.

If Iran acts, prices could soar to $130, JPMorgan warns, hammering consumers and industries from shipping to manufacturing. Saudi Arabia’s Red Sea pipelines offer a partial bypass, but not enough to offset a full strait closure. The global economy is in a precarious situation.

Did you know?
During the 1980-88 Iran-Iraq War, both nations attacked oil tankers in the Persian Gulf, targeting the Strait of Hormuz. Over 400 vessels were hit, driving oil prices up 25% and prompting U.S. naval escorts to secure the strait, a historic precedent for today’s fears of disruption.

Can Diplomacy Defuse the Crisis?

Distancing itself from Israel's unilateral strikes, the Trump administration must delicately balance its stance. Talks with Iran, set for Sunday in Oman, aim to curb Tehran’s nuclear ambitions, but the attacks complicate diplomacy. Tensions remain high due to Iran's vow to retaliate, potentially using proxies or drones.

The world observes as the U.S., China, and OPEC nations such as Saudi Arabia navigate this delicate situation. A misstep could turn a regional conflict into a global energy catastrophe. Will Iran's next move result in the closure of the Strait of Hormuz, or can calm heads prevent an energy catastrophe?