Iran's temporary closure of the Strait of Hormuz due to naval drills on Tuesday sent a clear message while its officials were conducting nuclear talks with the US, but created only minor delays for the global shipping industry, said analysts.
Iran's actions in the strategic waterway occurred as Washington has been talking up the prospects of war. The closure not expected to have a major impact on trade.
MarineTraffic, a ships monitor, showed normal activity in the area on Wednesday morning, but there was no official comment from Iran about the Strait reopening.
director of Investment Strategy and Research, Kamco Invest
Iran established a live-firing exercise area overlapping the inbound part of the Strait of Hormuz’s Traffic Separation Scheme, and requested that shipping kept clear of the area for several hours.
Shipping industry experts described the live-fire naval exercise as more geopolitical messaging than a threat to global energy security.
“We believe that this is messaging and counter-messaging between the US and Iran,” Junaid Ansari, director of Investment Strategy and Research at Kamco Invest, told The National. “We believe that this is a part of the overall negotiation from both sides.
“We only expect to see a minor disruption in shipping routes as it was a temporary and a partial closure of the routes.”
The closure of the strait was similar to the temporary closure of airspace a few weeks back, he said.
Key route
About one-fifth of the world’s total daily oil consumption, or around 20 million barrels of oil, passes through the Strait of Hormuz, along with cargo to and from the Gulf states, making it “a significant route” for world crude oil market, Mr Ansari said. “But again, there is no news of a significant halt or a major disruption caused by the naval drills.”
In the past few weeks, 135 crude tankers per week and 150 product tankers have passed through the strait (about half laden in the eastbound direction and half in ballast in the westbound direction), said Jakob Larsen, chief safety and security officer at shipping association Bimco.
Echoing Mr Ansari’s thoughts, he said that the Iranian exercise had been “expected to cause minor nuisance and delays to inbound shipping” heading for the Arabian Gulf, “but no major disruptions”.
Tensions are simmering, with fears of renewed conflict despite the continuing nuclear talks between Tehran and Washington. The US has warned that it would attack Iran if a deal is not reached. It has significantly ramped up its naval deployments in the Middle East, including by sending the USS Abraham Lincoln aircraft carrier group to within striking distance of Iran.
US Vice President JD Vance said on Tuesday that progress had been made in the talks with Iran but that “certain red lines” remain as Tehran keeps up its tough rhetoric towards Washington.
Following the second round of talks in Geneva, Mr Vance said in an interview with Fox News that the Iranians “are not yet willing to actually acknowledge and work through” the red lines set by US President Donald Trump.
But he said the negotiation “in some ways … went well” and that the Iranians had agreed to meet again.
The Strait of Hormuz is a major route for shipping in the Middle East, particularly for tankers carrying oil around the world. Structurally, it remains one of the world’s most critical chokepoints. The narrow channel, about 35km wide at the narrowest point, flows between Oman and Iran and links the region's crude oil producers with other key markets, making it vital to the global energy supply.
Despite threats, the politically sensitive strait has never been closed by Iran. Saudi Arabia, the world’s largest exporter of crude, moves more hydrocarbons through the waterway than any other country in the Gulf.
Safeguarding oil
In the event of the strait closing again, Mr Ansari said: “Oil pipeline is an option for producers like Saudi Arabia and the UAE, connecting oilfields to the Red Sea ports and the Gulf of Oman, that can technically be used to reroute close to 2.6 million barrels per day of crude oil from the two countries.”
“This alternative route can provide a cushion but the bulk of the total crude oil produced by these nations are still shipped.”
Minimal impact on oil prices … for now
The closure announcement's effect on crude oil prices seemed to be minimal so far, according to Mr Ansari. However, if tensions escalated between the two countries or the closure was extended, oil prices would be impacted, he warned.
“Oil prices have remained elevated since the start of the year due to the ongoing conflict between US and Iran. Any major disruption to the region like a war or a closure of the route could add close to 15 per cent to 20 per cent to crude oil prices as war premium.
“This means oil could trade between $75 a barrel to $80 a barrel levels in case the situation worsens or goes out of control,” he said.
The Strait of Hormuz is also key to transporting liquefied natural gas (LNG), fertilisers, copper and aluminium. Lombard Odier says a temporary spike in oil prices to $100 a barrel – or beyond – is plausible. “Global LNG prices would also be affected,” the Swiss bank said in a research note.
What next?
The shipping industry is monitoring the situation for any signs of escalation. For the moment, however, shipping firms have apparently treated the closure as a temporary operational disruption rather than a significant risk to energy supply chains.
John Stawpert, principal director of marine at the International Chamber of Shipping (ICS), said partial closure of the Strait of Hormuz due to military exercises is “not an uncommon practice” for navies and should not impede the flow of trade.
“We continue to encourage all ships operating in the region to conduct thorough risk assessments and to maintain vigilance in line with the latest BMP [best management practices] Maritime Security guidelines,” he said.
According to Lombard Odier, any Iranian action in the Strait would be a “high-risk, high-cost option for Iran itself because it would shut down its own oil exports, removing the regime’s primary source of income, and negatively affecting economies in Asia and the Middle East”.
“A risk scenario would drive increase in commodity prices, higher equity market volatility and a flight to haven assets,” it added.
