Held Hostage at Hormuz

Control over who passes through a vital strait has turned what ought to be a regional war into a global economic shock.

Globalisation’s greatest illusion is that distance no longer matters. Yet the modern economy still hinges on a handful of narrow maritime corridors where geography exerts an unforgiving grip. Today, 80 percent of global trade by volume and 70 percent by value moves by sea, funneled through chokepoints that double as geopolitical fault lines. The 2021 blockade of the Suez Canal, which cost an estimated $55 billion, briefly exposed this fragility. Pressure around the Strait of Malacca and piracy near the Red Sea have offered further warnings. Now, the crisis in the Strait of Hormuz has turned vulnerability into rupture.

The Strait serves as the ultimate determinant of global energy security - a narrow sealane that functions as the industrial world’s respiratory valve. Its de facto closure by Iran following the US-Israel strikes against it has transformed the Strait into a systemic economic crisis.

Strategic Edge

The waterway links the Persian Gulf to global markets, carrying Middle Eastern oil through a constrained and complex corridor. Though 33 to 39 kilometres wide, reefs, islands and shallow depths shrink navigable channels to under 12 kilometres, governed by a Traffic Separation Scheme. Overlapping Iranian and Omani waters add jurisdictional tension, while proximity gives Iran a strategic edge. Even absent a formal blockade, threats alone can inflate insurance costs and halt shipping, exposing the Strait’s acute vulnerability to asymmetric conflict.

Widely regarded as the world’s most critical energy chokepoint, it carried about 20 million barrels per day in 2025, roughly 20 to 25 percent of global oil consumption. Dependence is most acute for Kuwait, Qatar and Bahrain, which lack alternative outlets. Saudi Arabia, Iraq and the UAE remain structurally reliant despite bypass pipelines. Saudi Arabia and Iraq alone account for over 60 percent of crude and condensates shipped through Hormuz.

Yet oil tells only part of the story. The Strait is equally vital for natural gas. Around 20 percent of global LNG trade (over 112 billion cubic metres) passes through it, with Qatar as the principal exporter. Unlike oil, LNG systems lack flexibility; there are no viable pipeline alternatives if flows are disrupted. A closure would remove more than 300 million cubic metres per day from global supply, igniting fierce competition for cargoes. Prices would surge across Asia and Europe, forcing energy-intensive industries to scale back production.

Trade Artery

The Strait is also a major trade artery. The Gulf handles 33 million TEUs annually, with Jebel Ali Port managing nearly half, linking Kuwait, Qatar, Bahrain and Iraq. A shutdown would cut off three quarters of this traffic, stranding containers and disrupting supplies of electronics, medicines and garments.

Beyond containers, roughly 13 percent of global chemical trade flows through these waters, including fertilizers such as urea and nitrogen that are essential for food production. Disruptions halt shipments while simultaneously raising natural gas prices, the key input for fertilizers, triggering immediate increases in farm costs and food prices worldwide. The Strait’s diverse cargo mix makes it indispensable not just for energy, but for food security, manufacturing and consumer markets across Asia and beyond.

Its closure has unleashed global economic shockwaves. By removing 15 to 20 percent of energy supply, the crisis has driven sharp price spikes. Models of the 2026 conflict estimate losses ranging from $330 billion for short disruptions to over $2.2 trillion for prolonged closures - nearly 2 percent of global GDP. The International Monetary Fund notes that every sustained 10 percent rise in oil prices cuts global GDP by 0.2 percentage points and lifts inflation by 0.4. In a prolonged crisis, Brent crude could exceed $130 to $200 per barrel, creating stagflation defined by slowing growth and rising costs.

For Gulf exporters, the crisis has created a cruel paradox: prices soar, but exports stall. Losses run to $745 million a day, while rising food and water import costs have dragged equity markets down by 15 to 35 percent. Water security deepens the risk. Over 37 million GCC residents rely on desalination plants, often within range of Iranian strikes, with Kuwait and Oman sourcing up to 90 percent of drinking water this way, and Saudi Arabia 70 percent. Attacks could trigger humanitarian crises and unrest, turning water infrastructure into a potent asymmetric weapon.

Shipping costs have soared. War-risk insurance premiums have risen by 300 to 500 percent, pushing voyage costs from $250,000 to over $1 million per vessel. Bunker fuel prices in Singapore have doubled within weeks.

Attempts to bypass chokepoints have fallen short. Saudi Arabia’s Petroline is near its 7 million barrels per day capacity, while the UAE’s ADCOP and Iraq’s Kirkuk–Ceyhan pipelines add only limited volumes. Together, they move just 3.5 to 5.5 million barrels per day - far below the roughly 20 million that transit the Strait of Hormuz. These routes are also exposed, having faced attacks from Iranian drones and Houthi forces, as well as disruptions at UAE energy facilities.

Geopolitical Contest

The conflict has also widened into a geopolitical contest. The United States, Russia and China are each manoeuvring to shape the outcome.

Russia is exploiting the supply vacuum to deepen its energy leverage over Europe. India has revived Russian imports, and China may follow. Asian powers - China, Japan, India and South Korea - account for 85 percent of crude flows through Hormuz, yet have remained muted in response to recent strikes. Their reliance on strategic reserves - China with 104 days, Japan 254, South Korea 210 and India 74 - has enabled a cautious wait-and-see approach. China’s heavy dependence on Iranian crude may yet prompt quiet diplomatic intervention.

The crisis has exposed the limits of American planning, as Iran’s counteroffensive threatens to prolong the conflict into a grinding stalemate. In such an environment, China appears well-positioned to shape the emerging order.

Even if the Strait were to reopen immediately, restoring normal shipping, insurance and contractual arrangements would take months. The damage to global logistics and to the Middle East’s credibility as a reliable energy hub will endure.

(The author is a Chartered Accountant with a leading company in Mumbai. Views personal.)