The Global Oil Market Is Fungible: Who Gets Hurt If the Strait of Hormuz Closes?

Energy News Beat

The Strait of Hormuz, a narrow waterway between Iran and Oman, is the world’s most critical oil chokepoint, handling roughly 20 million barrels per day (b/d) of crude oil, condensate, and refined products—about 20% of global oil supply and 25% of liquefied natural gas (LNG). With tensions in the Middle East simmering, particularly between Israel and Iran, the specter of a closure looms large. The global oil market is fungible, meaning a disruption anywhere ripples everywhere, but not all players are equally vulnerable. So, who ships oil through the Strait, and who would feel the pain if it shuts down?

Peter St Onge, Ph.D., has explained this the best I have seen on X, and I have reached out to him to talk on the podcast. We recomend following him on X. Peter does leave out California’s weakness in the great explanation, but that being said, he is spot on the global markets.

Iraq’s Foreign Minister is claiming $300 oil if there’s a ground war in Iran.

Even Wall Street is projecting $130 if we’re dumb enough to put boots on the ground. pic.twitter.com/GTl2mt1EhU

— Peter St Onge, Ph.D. (@profstonge) June 18, 2025

Who Ships Oil Through the Strait of Hormuz?

The Strait is the lifeline for Persian Gulf oil exporters. In 2024, the breakdown of crude and condensate exports through the Strait included:

Saudi Arabia: 5.5 million b/d (38% of total Hormuz crude flows)
Iraq: 3.5 million b/d
United Arab Emirates (UAE): 2.5 million b/d
Kuwait: 2 million b/d
Qatar: 1.5 million b/d (plus 20% of global LNG)
Iran: 1.7–2.1 million b/d (mostly to China)

These countries rely on the Strait for nearly all their seaborne exports, with limited pipeline alternatives. Saudi Arabia’s East-West pipeline (5 million b/d capacity) and the UAE’s Fujairah pipeline (1.5 million b/d) can bypass the Strait, but only cover about 4.2 million b/d—far short of the 20 million b/d transiting daily. Qatar, a top LNG exporter, sends 80 million metric tons of LNG (20% of global flows) through the Strait annually, with no viable detour.

The Global Oil Market: Fungible but Not Pain-Free

Oil is a global commodity, and the market adjusts to disruptions by redistributing supply—but not without chaos. A closure of the Strait would spike Brent crude prices, with estimates ranging from $100–$150 per barrel in a partial disruption to $350 per barrel in a prolonged blockade. The ripple effects would hit economies differently, depending on their reliance on Gulf oil and ability to pivot.

China: The Biggest Loser

China, the world’s largest oil importer, is acutely vulnerable. About 50% of its crude imports—roughly 5.5 million b/d—come from Persian Gulf countries transiting the Strait, including 15% from Iran alone (1–1.5 million b/d). China’s manufacturing-heavy economy is sensitive to energy price shocks, and its strategic reserves, covering about 54 days of imports, offer only temporary relief. A closure would force China to scramble for costlier alternatives, potentially from Russia or Africa, driving inflation and disrupting its supply chains. Beijing’s economic leverage over Iran, its third-largest oil supplier, might deter Tehran from closing the Strait, but the risk remains high.

Europe: Exposed and Under Pressure

Europe, heavily reliant on imported oil and LNG, would also take a hit. In 2022, 82% of crude and condensate through the Strait went to Asian markets, but Europe still depends on Gulf oil, particularly from Saudi Arabia and Iraq, for a significant share of its imports. A closure would exacerbate Europe’s energy woes, already strained by reduced Russian gas supplies. LNG from Qatar, which supplies the UK and others, would be cut off, potentially spiking heating bills. Oil prices above $100 per barrel could reignite inflation, squeezing households and industries. Europe’s limited strategic reserves and lack of bypass pipelines make it particularly exposed.

Iraq: A Double-Edged Sword

Iraq, exporting 3.5 million b/d through the Strait, funds much of its economy—including military salaries—through oil sales. A closure would cripple its revenue, as Iraq lacks significant pipeline alternatives. This could destabilize its government, halt public sector payments, and exacerbate internal security challenges. Iran, which holds sway over Iraqi politics, might hesitate to disrupt its neighbor’s exports, but Iraq’s dependence on the Strait makes it a collateral victim in any escalation.

The US: Insulated but Not Immune

The United States, now a net oil exporter, is less vulnerable. In 2022, it imported only 0.7 million b/d from Persian Gulf countries through the Strait, just 11% of its crude imports and 3% of total petroleum consumption. Domestic production, particularly from shale, could cushion the blow, and US oil companies might even profit from higher global prices. However, a sustained price spike would still raise gasoline costs, impacting consumers and industries. The US maintains a robust Strategic Petroleum Reserve (SPR) of over 700 million barrels, enough to offset disruptions for months, but coordinated global releases with the International Energy Agency (IEA) would be needed to stabilize markets. Geopolitically, the US would face pressure to intervene, as its Fifth Fleet in Bahrain secures the Strait.

California: A West Coast Weak Spot

California, despite being in the US, is an outlier. The state imports about 70% of its oil, with 40–50% coming from Persian Gulf countries like Saudi Arabia and Iraq via the Strait. A closure would hit California harder than the rest of the US, driving up fuel prices and straining its refineries, which are tuned to process heavy Middle Eastern crudes. Unlike the East Coast, which can tap domestic or Atlantic Basin supplies, California’s geographic isolation and limited pipeline access amplify its exposure. Expect pump prices to surge, hitting commuters and the state’s logistics-heavy economy.

Iran: Shooting Itself in the Foot?

Ironically, Iran itself would suffer from a closure. Nearly all its 1.7–2.1 million b/d of oil exports, primarily to China, pass through the Strait from terminals like Kharg Island. Blocking the Strait would tank Iran’s economy, which relies on oil for 6% of GDP and half its government budget. Domestic unrest could flare if revenues dry up, threatening regime stability. This self-inflicted wound makes a full blockade unlikely, though Iran could harass tankers or target rivals’ infrastructure to sow chaos without fully closing the Strait.

Winners and Wildcards

A closure could benefit non-Gulf producers like Russia, which could ramp up exports to Asia, and US shale firms profiting from price spikes. Saudi Arabia and the UAE, with partial pipeline bypasses, might mitigate losses but would still face massive export disruptions. The wildcard is how long a closure lasts. A brief disruption (days) could be absorbed by IEA reserves, but a month-long blockade would “crater” the global economy, with Brent prices collapsing back to $200 per barrel after an initial spike.

The Bottom Line

The Strait of Hormuz is the world’s oil jugular, and its closure would send shockwaves through a fungible but fragile market. China and Europe, heavily reliant on Gulf oil and LNG, would face severe economic strain. Iraq’s oil-funded budget would implode, risking instability. The US, while better insulated, would still feel the pinch, with California hit hardest due to its import dependence. Iran, despite its threats, risks self-destruction by choking its own exports. The global oil market’s interconnectedness means no one escapes unscathed, but the pain would be sharpest for those tethered to the Persian Gulf’s flow.

I highly recommend following Anas Alhajji on X. He has pointed out that Iran has threatened to close the Strait of Hormuz approximately 15 times since 1980, but it has never followed through. It is 90% of the Iranian government’s budget.

Iranian officials have threatened to close the Strait of Hormuz about 15 times since 1980. Threats occurred during the 1980s Iran-Iraq War and in 2008, 2011, 2012, 2018, 2019, 2022, 2024, and now.

They have never followed through. Why believe them now? https://t.co/dC5kJwIPXA

— Anas Alhajji (@anasalhajji) June 18, 2025